THE  LIBRARY 

OF 
THE  UNIVERSITY 

OF  CALIFORNIA 
LOS  ANGELES 


EXECUTIVE  STATISTICAL 
CONTROL 


BY 
DWIGHT   T.  FARNHAM 

Consulting  Industrial  Engineer 


VOLUME  6 
FACTORY  MANAGEMENT  COURSE 


INDUSTRIAL    EXTENSION    INSTITUTE 

INCORPORATED 

NEW  YORK 


Copyright,  1917,  by 
INDUSTRIAL  EXTENSION   INSTITUTE 

INCORPORATED 

Copyright,  1920   by 
INDUSTRIAL  EXTENSION   INSTITUTE 

INCORPORATED 


Bus.  Admin. 
Library 


76 


PREFACE 


/     ** 


Early  in  1917  English  industrial  leaders  were  stating 
frankly  in  print  that  the  salvation  of  the  state,  of  capital  and 
of  labor  after  the  war,  would  depend  upon  the  nation's  in- 
come, which  in  turn  would  depend  upon  the  reduction  of  pro- 
duction costs  sufficiently  to  allow  over-seas  competition  to  be 
met.  In  fact,  a  growing  conviction  developed  among  pro- 
gressive thinkers  in  England  that  the  interest  of  the  state, 
whose  policy  would  be  largely  directed  by  labor,  would  after 
the  war  be  forced  to  the  consideration  of  labor  efficiency 
secured  through  some  form  of  scientific  management.  Strange 
as  it  may  seem,  in  a  country  long  noted  for  its  ultra-con- 
servatism, scientific  management  has  been  regarded  as  an  aid 
to  labor  much  more  widely  in  England  than  in  America. 

If  competition  becomes  a  race  between  separate  nations, 
America  must  strain  every  nerve  to  the  attainment  of  indus- 
trial efficiency.  If  competition  resolves  itself  into  economic 
war  between  groups  of  nations,  America  must  be  prepared 
rather  to  aid  than  to  clog  the  industrial  progress  of  her  allies. 
If  competition  is  replaced  by  the  industrial  millenium  of  the 
Internationalists,  all  that  America  can  teach  the  world  by 
example  —  reducing  the  expenditure  of  labor  required  per 
unit  of  production,  and  so  aiding  humanity  by  the  reduction 
of  fatigue  and  by  the  cheapening  of  both  ncessities  and  lux- 
uries —  will  be  received  with  acclaim. 

Every  man,  woman,  or  child  who  can  assist  in  fitting  his 
country  to  meet  the  future  fearlessly  and  successfully  is  assist- 
ing humanity.  After  the  destruction  and  cataclysm  of  war, 


1260718 


in  PREFACE 

unnecessary  waste  of  labor  or  of  material  is  little  less  than 
criminal.  The  executive — be  he  president  of  a  world-wide 
corporation  or  straw  boss  in  a  construction  camp  at  the  ends 
of  civilization — who  can  so  conduct  the  work  which  has  been 
intrusted  to  him  that  every  co-worker  will  save  something, 
either  labor  or  material,  which  otherwise  would  be  lost  to  the 
world  is  assisting  reconstruction.  Every  industrial  engineer 
and  every  teacher  who  can  assist  an  executive,  a  laborer,  or  a 
child  to  comprehend  and  to  practice  conservation  at  such  a 
time  is  assisting  the  race. 

In  preparing  the  following  pages,  in  which  I  have  en- 
deavored to  detail  the  facts  the  industrial  executive  should 
have  always  before  him  and  to  explain  why  he  requires  such 
facts  to  conduct  effectively  the  business  for  which  he  has 
assumed  the  responsibility,  I  have  drawn  very  freely  upon 
knowledge  secured  as  a  manual  laborer,  as  an  executive,  and 
as  an  engineer  for  a  period  covering  some  fifteen  years. 
Under  the  circumstances  it  is  manifestly  impossible  to  enu- 
merate the  sources  of  my  information  and  to  give  credit  where 
it  is  due.  However,  I  feel  especially  indebted  to  the  late 
Frederick  W.  Taylor,  both  for  his  books  and  for  his  personal 
assistance,  given  me  freely  at  a  time  when  he  could  ill  afford 
it;  to  H.  L.  Gantt  whose  eminently  practical  view-point  led 
me  to  realize  that  the  material  return  to  both  capital  and 
labor  from  scientific  management  could  be  successfully  set 
forth  without  injury  to  the  ideals  of  the  best  of  either;  to 
Harrington  Emerson  as  a  continual  source  of  inspiration  dur- 
ing my  association  with  the  Emerson  Company,  and  to  D.  M. 
Hyman  and  certain  of  his  associates  from  whom  I  gained  an 
intimate  knowledge  of  and  respect  for  the  methods  which 
render  the  large  corporation  executive  successful. 

DWIGHT  T.  FAENHAM. 


TABLE    OF    CONTENTS. 


CHAPTER  I 

THE  EXECUTIVE  AND  THE  MODERN 
ORGANIZATION 

Field  for  Scientific  Management 1 

Salesmanship  as  an  Example 2 

Growth  of  Corporations 4 

Prosperity  versus  Success 6 

Strain  upon  the  Modern  Executive 8 

English  and  American  Methods  Contrasted    ....  9 

Subordination  of  Detail 11 

CHAPTER  II 

THE  MIND  AND  METHODS  OF  THE  EXECUTIVE 

The  Narrow-Minded  Executive 13 

Feudal  Type  of  Organization 15 

Executives  and  Subordinates 17 

Exact  Knowledge  a  Necessity 20 

Scientific  Forecasting 23 

Analysis  an  Aid  in  Forecasting 23 

CHAPTER  III 

THE  EXECUTIVE  FUNCTION  OF  STATISTICS 

A  Financial  Failure 26 

Antiquated  Methods 29 

vii 


viii  TABLE  OF  CONTENTS 

PAGE 

Dislike  of  Elaborate  Cost  Systems 30 

Fundamental  Principles  of  a  Cost  System     ....  32 

Application  of  the  Principles 33 

CHAPTER  IV 

THE  COST  SYSTEM,  THE  SOURCE  OF  RELIABLE 
STATISTICS 

The  Basis  of  Scientific  Management 37 

Elements  of  Scientific  Management 39 

Danger  of  Adopting  System  Blindly 42 

Dispatch  Board  Gets  Results 44 

Assembling  the  Costs 47 

Costs  and  Operative  Efficiency 52 

Efficiency,  Production  Costs,  and  Profits 55 

CHAPTER  V 

THE  COST  SYSTEM  (Continued] 

Job-Cost  and  Continuous-Production  Systems     ...  58 

Mnemonic  System's  Special  Advantages 58 

Combination  Mnemonic  and  Numerical  System    ...  62 

Classification  of  Accounts 65 

Important  Broad  Principles,  Not  Details 71 

CHAPTER  VI 

THE  PERSONAL  EFFICIENCY  OF  THE  EXECUTIVE 

The  Inefficient  Executive      .      . 73 

Dangers  of  Impulse  and  Vanity      .           76 

The  Efficient  Executive 78 

Training  the  Staff 81 

Handling  Correspondence 82 

Waiting  Line  a  Menace  to  Efficiency 84 

Bossing  Your  Job 86 

The  Limited  Interview    .           89 


TABLE  OF  CONTENTS 


Conserving  Time  and  Energy 91 

Planning — The  ' '  Tickler ' '  System 92 

Follow-Up  Illustrated 94 

Remedy  for  Executive  Inefficiency 97 

Delegating  Authority 99 

Facts  versus  Opinion .  100 

CHAPTER  VII 

THE  GRAPHIC  METHOD  OF  PRESENTING  FACTS 

One-Man  Graphic  Method 102 

Advantages  of  Ruling  Pen 103 

Paper  and  Scale 104 

Graphs  Show  Relative  Value 107 

Men  Who  Make  the  Graphs 110 

The  Control  Curves 114 

Graphs  and  the  "Exception  Principle" 117 

Some  Special  Details 120 

CHAPTER  VIII 

THE  ANALYSIS  OF  THE  BUSINESS 

First  Phase— Bird 's-Eye  View 122 

Second  Phase— Handling  Details 126 

A  Set  of  Typical  Graphs 128 

"Net  Profit"  Graph 129 

Analysis  of  Fluctuations 132 

Fundamental  Factors 135 

Applying  the  Remedy 137 

Relationship  of  Curves 139 

Setting  Standards-Profit 141 

Selling  Prices 143 

Output 146 

Manufacturing  Cost 149 

Indirect-Labor  Standards 154 


X  TABLE  OF  CONTENTS 

CHAPTER  IX 

EFFICIENT  SELECTION  AND  CONSERVATION 
OF  LABOR 

PAGE 

The  Executive's  Raw  Materials 156 

Labor  and  Material-Conservation 157 

Selecting  Labor 158 

The  Problem  Underestimated 160 

Common-Sense  Tests 162 

Employment  Manager  Needed 163 

Importance  of  the  Position 165 

Questioning  the  Men  Tactfully 166 

Applying  the  Golden  Rule 168 

Filling  Out  Register  Cards        169 

Standard  Practice  Recommendation 170 

Reduction  of  Labor  Turnover 173 

Some  Important  Axioms 174 

Reaching  Desirable  Workers 177 

A  Useful  Application  Blank 179 

Nationalities,  Naturalization  and  Residence    ....  182 

Length  of  Employment 182 

Monthly  Labor  Turnover 184 

The  Safety  of  Employees 189 

Safety  First  Campaigns 191 

Other  Welfare  Work 193 

CHAPTER  X 

SELECTION  AND   CONSERVATION  OF  MATERIAL 

Selection  of  Material 195 

Graphs  Reveal  Wastage 196 

Analysis  Essential  to  Economy 200 

Stopping  Technical  Wastes 203 

Storeroom  Methods 204 

Material  Charts    ,  .  208 


TABLE  OF  CONTENTS  xi 

CHAPTER  XI 

THE  EXECUTIVE  AND  THE  OUTPUT 

PAGE 

Output  and  Production  Costs 211 

Mismanagement  Reduces  Output 214 

Time-Studies  Valuable 215 

Improper  Plant  Balance 216 

Daily  and  Monthly  Output  Charts 219 

CHAPTER  XII 

THE  EFFICIENCY  OF  SUPPLY  OF  LABOR 

Problem  of  Idle  Labor 224 

"The  Man  Higher  Up"  Responsible 225 

Co-operation  and  Collective  Action 226 

"Excess  Board" 228 

Operating  the  Dispatch  Board 233 

Omniscience  of  Superintendents 237 

The  Proper  Method 239 

Function  of  Dispatch  Office 240 

CHAPTER  XIII 

EFFICIENCY  OF  USE  OF  LABOR 

Law  of  Dependent  Sequence 243 

Setting  the  Standards 244 

The  Old  "Gad  and  Carrot"  Principle 245 

The  Corresponding  Modern  Principle 246 

Gang  Must  Fit  Environment 246 

Reservoirs  of  Work 247 

Results  of  Standardization 251 

Lack  of  Standardization  Prevalent 253 

Value  of  a  Standard  .  255 


xii  TABLE  OF  CONTENTS 

CHAPTER  XIV 

THE  EFFICIENCY  OF  USE  OF  LABOR  (Continued) 

PAGE 

Economic  Waste  Too  Common 258 

The  Zest  for  Work 259 

Scientific  Management  and  the  Worker 264 

Scientific  Management  and  Justice 266 

Interest  of  the  Worker  an  Asset 270 

Value  of  Statistics 271 

CHAPTER  XV 

THE  EFFICIENCY  OF  USE  OF  MACHINERY  AND 
EQUIPMENT 

Improvement  versus  Innovation 273 

Accurate  Standardization 274 

Reducing  the  Number  of  Delays 278 

Standard  Practice  Recommendation 280 

Similar  Laws  for  Machinery  and  Labor 282 

Effect  of  Equipment  Upon  Labor 284 

Standardization  Solves  the  Executive's  Problems     .      .  286 

CHAPTER  XVI 

GRAPHIC  TECHNICAL  CONTROL 

Scientific  Method  Applicable  to  Every  Plant  ....  289 

Scientific  Methods,  Not  "Trade  Secrets" 291 

Scientific  Management  and  Manufacturing     ....  292 

Separate  Department  for  Collecting  Data      ....  296 

Showing  the  Men  Results 298 

Getting  Results  from  Charts 301 

Insuring  Competent  Management 305 

CHAPTER  XVII 

PLANNING  AND  DISPATCHING  CONTROL 

Casual  Management  and  Its  Results 308 

Time-Study  and  Job-Production  Operation    ....  311 


TABLE  OF  CONTENTS  -xiU 

PAGE 

Scientific  Planning  and  Dispatching 312 

Planning:  Continuous-Production  System      ....  316 

Planning:  Job-Production   System 317 

Wastes  Due  to  Imperfect  Planning 318 

Business  Value  of  Dependableness 325 

Scientific  Planning  Pays 331 

CHAPTER  XVIII 

PEODUCTION  AND  SALES  CONTROL 

Executive  Must  Promote  Harmony 332 

Salesman  and  Superintendent  Contrasted     ....  332 

Friction  between  Sales  and  Operating  Departments  .      .  336 

Three  Types  of  Business 338 

Monopolistic  Type 338 

Strategic  Type 340 

Competitive  Type 342 

Establishing  Close  Relationship  between  Departments  .  342 

Inspection  Department  a  Point  of  Contact     ....  343 

The  Ultimate  Remedy 345 

Tabulating  Rejections 347 

Qualifications  of  the  Manager 348 

CHAPTER  XIX 

SALES  CONTROL 

Executive   Should   Know   Both    Operating   and    Sales 

Branches 349 

The  Salesman  Type 350 

The  Sales  Manager  Type 350 

Importance  of  Tabulating  Data 351 

Knowing  the  "Bread"  from  the'  'Cake" 352 

Statistics  Concerning  Territories 352 

Sales  Lost 354 

"Double-Star"  Sales  354 


xiv  TABLE  OF  CONTENTS 

PAGE 

Salesmen's  Expense  Accounts 355 

Purely  Sales  Statistics 357 

Scientific  Management  and  the  Sales  Department    .     .  357 

Three  Classes  of  Business:  Quality  Monopoly    .     .     .  360 

Business  Secured  Through  "Preference"     ....  360 

Business  Obtained  Through  Price-Cutting     ....  360 

Scientific  Management  and  Scheduling 362 

The  Bonus  System  and  Price-Cutting 362 

Paying  Salesmen  According  to  Accomplishment      .     .366 

Emphasizing  Desirable  Qualities 366 

Making  Ideals  a  Goal '.      .  367 

Amount  of  Sales  Territory 369 

Scientific  Method  of  Reward :  Department  Stores    .      .  371 

Individual  Methods  Vary 373 


CHAPTER  XX 

ADMINISTRATION  AND  FINANCE 

Charging  to  Costs  the  Interest  on  Investment     .      .      .  375 

Another  Accounting  Method 376 

General  Charges 378 

Administration  Charges 380 

The  Investment  Phase 382 

Outside  Securities 383 

The  Danger  of  Over-Expansion 384 

Distributing  Dividends  Evenly 385 

Predicting  Income  and  Operating  Expenses  ....  385 

Study  of  Past  Records 388 

Charting  Actual  Income  and  Expenditure     ....  388 

Not  Too  Many  Charts 389 

Production  Costs    .  389 


TABLE  OP  CONTENTS  xv 

CHAPTER  XXI 

SCIENTIFIC  MANAGEMENT  FOR  THE  FACTORY  OF 
MODERATE  SIZE 

PAGE 

The  Usual  Type  of  Manager 394 

Difficulties  of  Introducing  Scientific  Management    .     .  396 
Evolution    of    the    Superintendent    (Staff) — Assistant 

Superintendent  (Line)  Idea 396 

Application  of  the  Principle 397 

Results  as  to  Fuel 398 

Results  as  to  Output 399 

Results  as  to  Costs 399 

Results  as  to  Labor 400 

Further  Application  of  the  System 401 

Application  of  Scientific  Management 402 

Meeting  the  Conditions 403 

CHAPTER  XXII 

CONCLUSION 

Important  Opinions:  Educational  and  Governmental    .  405 

Increasing  Stress  Upon  Responsibility 408 

The  Keynote  of  Scientific  Management 409 

Modern  versus  Ancient  Practice 410 

Getting  Orders  Carried  Out 411 

APPENDIX  A 

MECHANICAL  AIDS  TO  THE  ASSEMBLY  OF 
STATISTICS 

Adding  and  Listing  Machines 412 

Computing  and  Tabulating  Machines  ....  421 

Mechanical  Classification  of  Executive  Data   ....  428 


xvi  TABLE  OF  CONTENTS 

APPENDIX  B 

MISCELLANEOUS  AND  BIBLIOGRAPHY 

PAGE 

Eatio  Charts 433 

Bibliography  of  Cartography 435 

Bibliography  of  Management 439 

Periodicals  of  Management 441 


EXECUTIVE  STATISTICAL  CONTROL 


CHAPTER  I 

THE  EXECUTIVE  AND  THE  MODERN 
ORGANIZATION 

Field  for  Scientific  Management.— Too  much  scien- 
tific management  work  begins  and  ends  only  in  the 
factory.  This  is  perhaps  natural,  as  the  industrial 
engineer  is  usually  engaged  by  the  chief  executive  to 
standardize  manufacturing  conditions  rather  than  to 
educate  the  higher  executives,  and  it  very  often  does 
not  occur  to  those  in  charge  of  a  large  corporation 
that  the  other  branches  of  the  business  should  be  just 
as  carefully  standardized  in  order  that  highest  effi- 
ciency may  be  obtained. 

One  striking  example  will  be  enough  to  illustrate 
what  may  occur  when  the  factory  is  regarded  as  the 
only  field  for  decisions  scientifically  reached.  A  num- 
ber of  years  ago,  a  concern  capitalized  at  several  hun- 
dred thousand  dollars  engaged  some  engineers  to  in- 
troduce efficiency  methods  into  the  factory.  Officials 
of  the  company  became  very  enthusiastic  over  the 
work.  The  general  manager  spent  a  great  deal  of 
time  at  the  plant  studying  the  methods.  Production 
went  up  by  leaps  and  bounds,  and  the  cost  of  manu- 
facture steadily  decreased.  Each  month,  as  the  prog- 
ress became  more  noticeable,  the  executives  were 
I 


2  EXECUTIVE  STATISTICAL  CONTROL 

more  pleased.  Suddenly  something  occurred  which 
surpassed  the  expectations  of  even  the  wildest  en- 
thusiast— direct  costs  dropped  to  absolute  zero! 
The  concern  had  run  out  of  orders  and  no  units  were 
being  produced. 

Cases  of  this  sort  fortunately  are  not  common,  but 
nevertheless  in  every  business  conditions  are  such 
that  there  is  a  large  field  outside  the  factory  to  which 
the  principles  of  scientific  management  can  be  ap- 
plied to  great  advantage. 

Salesmanship  as  an  Example. — Scientific  salesman- 
ship consists  largely  in  the  application  of  certain 
principles  of  psychology  to  selling  with  a  view  to  de- 
veloping a  convincing  personality  in  the  salesman. 
Certain  aspects  of  marketing  are  covered  fairly  ex- 
haustively by  some  of  the  advertising  companies,  the 
better  sort  of  which,  after  a  careful  investigation 
along  scientific  lines,  will  give  their  client  a  very  fair 
idea  of  the  territory  in  which  his  product  can  be 
most  advantageously  placed,  the  selling  price  which 
will  bring  him  the  largest  return,  and  the  proper 
method  of  placing  the  product  before  the  public.  In 
connection  with  the  method  they  emphasize  the  im- 
portance of  the  style  of  container,  the  method  of  pres- 
entation and  the  advertising  media.  How  far  the 
executive  should  go  as  regards  either  encouraging  his 
salesmen  to  study  the  various  courses  in  applied  psy- 
chology or  engaging  the  expert  in  marketing  to  ana- 
lyze his  selling  field,  depends,  of  course,  upon  the  na- 
ture of  the  business.  Both  these  lines  of  endeavor 
are  somewhat  outside  the  scope  of  what  is  generally 
understood  as  scientific  management,  although  both 


EXECUTIVE  AND  THE  ORGANIZATION  3 

may  be  recommended  upon  occasion  by  the  engineer. 

There  is  no  question,  however,  about  the  great  need 
for  a  much  more  general  application  of  scientific  prin- 
ciples in  the  sales  department.  For  the  most  part 
salesmen  and  sales  managers  are  paid  straight  sal- 
aries, or  salaries  together  with  commissions  on  sales. 
The  first  method  is  strictly  comparable  to  the  day- 
wage  system  of  payment,  in  accordance  with  which 
the  workers  are  paid  for  time  served,  irrespective  of 
accomplishment;  under  such  circumstances  the  only 
incentive  is  the  fear  of  discharge.  The  second  method 
is  worse  than  the  old-fashioned  piece-rate  system. 
The  commission-on-sales  plan  influences  the  salesman 
to  attempt  to  cut  prices,  and  involves  the  necessity 
of  his  convincing  the  firm  that  such  action  is  neces- 
sary in  his  particular  territory.  Any  sales  manager 
has  only  to  analyze  his  reasons  for  not  allowing  his 
men  to  carry  a  "side  line"  to  realize  how  much 
greater  an  incentive  a  direct  and  personal  interest 
in  his  line  is  to  a  man  than  any  incentive  furnished 
by  the  usual  method  of  payment. 

Salesmen  should  be  paid,  not  to  cut  prices,  but  to 
exert  every  possible  effort  to  increase  the  net  profits 
of  the  firm,  in  the  quantity  of  goods  sold,  the  price 
per  unit  obtained,  and  to  reduce  the  sales  expense 
incurred.  Whenever  the  plan  is  practicable,  they 
should  be  rewarded  also  for  their  attainment  of  the 
firm's  ideals  in  regard  to  the  treatment  of  customers 
as  well  as  concerning  other  policies  upon  which  the 
expansion  and  the  ultimate  success  of  the  business 
depends.  This  method  can  be  used,  and  is  being 
used;  moreover,  wherever  it  has  been  carefully 


4  EXECUTIVE  STATISTICAL  CONTROL 

worked  out  and  consistently  applied  by  the  right 
kind  of  executive,  it  has  done  as  much  for  the  sales 
department  as  the  bonus  reward  system  has  done  for 
the  factory. 

It  is  not  the  purpose  to  treat  in  detail  at  this  time 
the  methods  of  the  application  of  scientific  principles 
to  any  particular  department,  but  rather  to  outline  a 
method  by  means  of  which  the  executive  may  obtain 
the  utmost  efficiency  in  every  department.  This  end 
he  will  accomplish  by  properly  co-ordinating  all  de- 
partments, by  carefully  subordinating  the  minor  de- 
partments according  to  their  relative  importance,  and 
by  establishing  the  ratchet  principle,  which  automati- 
cally prevents  the  loss  of  any  advantage  gained — in 
other  words,  by  the  application  of  science  to  admin- 
istration through  the  medium  of  statistical  control. 

Growth  of  Corporations. — Formerly,  before  the  eco- 
nomic changes  that  came  with  the  steam  engine  re- 
sulted in  the  creation  of  our  industrial  armies,  the 
owner  of  a  business  was  its  chief  executive  and  very 
often  assumed  the  duties  of  half  a  dozen  other  offi- 
cers, even  usurping  in  some  cases  duties  which  the 
expert  accountant  would  now  classify  under  the  head 
of  janitor  service.  He  was  in  personal  touch  with 
every  detail  of  the  business.  He  knew  personally 
every  employee,  and  sometimes  all  the  members  of 
each  employee's  family  also.  Such  intimate  knowl- 
edge of  personnel  and  conditions  is  now  obviously  im- 
possible. It  is  hard  to  realize  that  if  Henry  Ford 
wish  to  chat  with  each  of  his  employees  for  an 
hour,  if  he  chatted  ten  hours  a  day  he  would  finish 
up  with  his  office  boys  about  three  years  from  now. 


EXECUTIVE  AND  THE  ORGANIZATION  5 

Business  has  progressed  so  fast  in  America,  and 
corporations  have  grown  so  rapidly,  that  the  com- 
plexities have  in  many  cases  become  more  than  a 
single  human  mind  can  grasp.  According  to  Darwin, 
evolution  takes  time,  and  we  all  know  that  our  super- 
men haven't  been  developed  as  fast  as  our  "super-cor- 
porations." Hence  the  country-wide  search  for  su- 
per executives,  and  the  innumerable  physical  and 
mental  breakdowns  among  executives.  And  this  lack 
of  super-men  is  also  responsible  in  great  measure  for 
the  fact  that  only  about  half  the  corporations  in  the 
country  pay  dividends.  Bradstreet  attributes  more 
than  a  quarter  of  all  the  business  failures  to  incom- 
petence, and  five  per  cent  to  inexperience.  "Our  in- 
tentions were  all  right,  but  we  haven't  been  able 
to  stand  the  strain,"  is  the  explanation  often  heard 
in  connection  with  business  failure. 

We  have  all  of  us  seen  businesses  which  have 
prospered  and  expanded,  and  yet  have  eventually 
gone  on  the  rocks.  They  were  prosperous  as  long  as 
all  was  under  the  eye  of  the  proprietor,  but  when  he 
had  to  delegate  some  of  his  authority  to  others,  things 
began  to  go  wrong.  He  could  manage  details  him- 
self, but  details  increased  too  fast  for  him.  He  had 
always  looked  into  everything  personally.  As  the 
business  grew,  he  resembled  more  and  more  a  Mara- 
thon racer  on  the  last  lap,  straining  every  nerve  to 
keep  up  with  the  rest.  If  he  had  an  iron  constitu- 
tion he  didn't  fall  by  the  way,  but  even  then  the 
business  ceased  to  prosper.  Of  course,  in  America 
the  great  god  Luck  will  very  often  see  a  corporation 
through  such  periods. 


6  EXECUTIVE  STATISTICAL  CONTROL 

Prosperity  Versus  Success. — Not  long  ago  a  big 
financier  indicated  very  clearly  that  prosperity  is  not 
necessarily  a  guarantee  of  success  when  he  advised  a 
young  man  in  the  following  words  against  entering 
the  employ  of  a  large  and  prosperous  corporation  in 
which  he  hoped  to  gain  business  experience:  "Get 
a  job  with  a  concern  that  is  losing  money,  or  that's 
just  keeping  its  head  above  water.  You'll  learn 
something  about  business  there.  Lots  of  these  fel- 
lows that  are  earning  big  dividends  are  throwing 
away  as  much  as  they  are  making.  They  don't  know 
it,  and  you'll  learn  bad  habits." 

America's  business  success  is  perhaps  not  so  clearly 
attributable  to  the  looting  of  natural  resources  as 
some  of  our  conservationists  would  have  us  believe, 
but  nevertheless  financial  success  has  ensued  in  spite 
of  bad  management  much  more  often  than  some  of 
our  self-made  millionaires  would  be  inclined  to  admit. 
The  business  that  is  barely  making  dividends  is  like 
a  man  who  has  been  scared  by  his  physician — it  is 
taking  care  of  itself.  The  business  that  is  making 
large  dividends  isn't  spending  time  in  self-analysis. 
It  grows  large  and  fat  and  hearty,  until  some  day 
the  hidden  weakness  within  causes  its  collapse  and 
it  comes  down  with  a  crash  that  shakes  the  financial 
world. 

Careful  bankers  will  tell  the  investor  that  if  he 
wants  to  be  absolutely  sure  of  his  principal  he  had 
better  stick  to  securities  paying  between  four  and  five 
per  cent;  that  if  he  is  willing  to  take  a  little  risk, 
mortgages  are  all  right  up  to,  say,  six  per  cent;  but 
that  if  he  is  going  to  invest  in  a  manufacturing 


EXECUTIVE  AND  THE  ORGANIZATION  7 

proposition,  as  a  general  rule  he  ought  to  have  at 
least  eight  or  ten  per  cent  to  cover  the  additional  risk 
incurred  in  industrials.  It  is  very  easy  to  attribute 
the  existence  of  this  risk  to  "tariff  monkeying"  or  to 
"politics,"  but  it  is  not  so  easy  to  remedy  condi- 
tions. Whatever  the  explanation,  the  fact  remains 
that  "industrials"  are  risky  in  America. 

Politics,  business  conditions,  and  other  general 
causes  are  too  often  blamed  in  this  country  for  busi- 
ness troubles.  It  is  much  easier  to  say  that  hard 
times  or  the  weaknesses  of  the  Administration  are 
responsible  than  to  analyze  one's  own  business 
thoroughly,  to  arrive  at  the  fundamentals  underlying 
fluctuations,  and  to  provide  against  the  lean  years 
firmly  and  consistently.  It  is  a  great  temptation  to 
the  president  of  a  corporation  to  gain  the  plaudits  of 
his  stockholders  by  paying  a  ten  or  twenty  per  cent 
dividend.  Stockholders  who  advance  their  scale  of 
living  in  accordance  with  a  policy  of  this  sort  are  not 
pleased  when  dividends  are  passed;  and  the  executive 
who  has  been  tempted  into  this  "after  us  the  deluge" 
policy  usually  finds  his  flood  arriving  strictly  on 
schedule — there  is  a  change  in  administration;  all 
that  he  and  his  associates  learned  at  the  expense  of 
the  stockholders  departs  with  them,  and  another  ad- 
ministrative force  must  be  educated.  Careful  and  in- 
telligent analysis  of  the  business  would  have  pre- 
vented all  this.  Dividends  might  not  have  gone  over 
seven  per  cent,  but  there  would  have  been  a  sinking 
fund  sufficient  to  provide  for  periods  of  stress,  and  the 
business  would  not  have  had  to  furnish  a  training 
course  for  executives. 


8  EXECUTIVE  STATISTICAL  CONTROL 

Strain  upon  the  Modern  Executive. — The  official 
position  of  our  modern  executive  is  no  sinecure; 
rapid  industrial  expansion  has  given  rise  to  in- 
numerable problems  that  he  must  solve.  He  has  to 
run  the  business.  Decision  after  decision  is  required 
of  him  on  short  notice,  until  sometimes  it  seems  to 
the  overworked  business  manager  that  emergencies 
follow  one  another  with  the  rapidity  of  shots  from  a 
machine  gun.  The  strain  of  having  to  render  de- 
cisions of  an  unusual  nature  without  being  able  to 
make  adequate  investigation,  and  often  in  the  knowl- 
edge that  thousands  of  dollars  depend  upon  each 
such  decision,  is  terrific  and  sooner  or  later  will  bring 
disaster  either  to  the  executive  or  to  the  business. 
For  this  reason,  more  and  more  executives  are  reserv- 
ing a  portion  of  their  time  for  the  contemplation  of 
the  larger  problems  of  their  business.  They  are 
organizing  statistical  departments — not  the  kind 
marked  by  dusty  cubby  holes  and  run  by  dried  up 
clerks  on  tall  stools  adding  endless  columns  of  figures 
which  are  filed  away  among  the  cobwebs,  but  live 
departments  thoroughly  supplied  with  information 
as  to  the  ideals  and  the  objects  of  the  business, 
having  as  assistants  young  men  who  visit  and  in- 
vestigate the  factories  and  who  will  ultimately  be- 
come valuable  executives.  These  helpers  keep  the 
chief  executive  thoroughly  informed  concerning  the 
conditions  and  the  tendencies  of  the  business.  With 
complete  information  at  his  command  in  a  form  easily 
comprehended,  the  executive,  when  a  problem  arises, 
can  retire  to  his  office  and  in  a  comparatively  short 
time  grasp  the  whole  situation  and  plan  his  course  of 


EXECUTIVE  AND  THE  ORGANIZATION  9 

action  intelligently.  Under  such  circumstances  it  is 
a  pleasure  for  him  to  make  decisions  for  he  is  not 
merely  making  a  jump  in  the  dark. 

English  and  American  Methods  Contrasted. — Many 
American  business  men  do  not  understand  fully  the 
conservation  of  their  energies.  Too  many  of  them, 
because  they  have  few  interests  outside  their  busi- 
ness, are  inclined  to  spend  long  hours  at  the  office. 
The  business  day  of  the  Englishman  is  in  strong  con- 
trast to  that  of  the  American.  Any  one  who  has 
done  business  in  England  or  in  Canada  has  been  first 
exasperated  and  then  amused  by  the  (ten  to  four 
o'clock  with  two  hours  off  for  lunch)  office  hours  of 
our  British  cousins — but  further  acquaintance  with 
their  method  of  doing  business  convinces  a  man  that 
there  is  something  to  be  said  for  the  system.  English 
business  men  accomplish  about  as  much  in  six  or 
seven  hours  a  day  as  American  business  men  accom- 
plish in  eight  or  nine.  And  most  Englishmen  look 
younger  at  fifty  than  most  Americans  do  at  forty. 

Shortly  after  the  beginning  of  the  war  I  called  upon 
the  general  manager  of  the  Daimler  Motor  Company 
in  Coventry.  Considering  the  fact  that  the  company 
was  fairly  overwhelmed  with  war  orders,  I  was  sur- 
prised that  he  could  grant  me  any  time  at  all.  His 
reception  of  my  call  was  a  marvel  of  diplomacy.  He 
made  me  feel  that  he  was  placing  his  whole  day  at 
my  disposal,  and  yet  he  gave  me  all  the  information 
I  wanted  and  got  rid  of  me  in  about  ten  minutes! 
It  would  have  been  impossible,  in  all  probability,  to 
reach  an  American  executive  under  similar  circum- 
stances, but  even  if  you  did  you  would  find  him 


10  EXECUTIVE  STATISTICAL  CONTROL 

armed  with  a  manner  implying  "I  am  an  extremely 
busy  man — say  what  you've  got  to  say  and  get  out," 
or  else  he  would  have  wasted  three-quarters  of  an 
hour  on  you. 

Kecently,  a  Frenchman,  in  criticising  our  strenuous, 
rather  than  effective,  business  methods,  referred  to 
our  stenographical  system.  He  had  observed  the  fol- 
lowing case:  A  man  rushed  into  a  New  York  hotel, 
dictated  half  a  letter  to  a  girl,  which  she  took  directly 
on  the  machine  "to  save  time,"  tore  that  letter  up,  re- 
dictated  part  of  it,  and  tore  that  up.  Finally,  at  the 
third  trial,  after  spending  three-quarters  of  an  hour 
of  his  own  and  the  stenographer's  time  in  the  most 
frenzied  and  nerve-racking  fashion,  he  completed  a 
simple  letter  which,  as  my  French  friend  said,  "My 
secretary,  Louis,  would  have  written  by  himself  after 
a  word  or  two  of  comment  from  me,  in  fifteen 
minutes,  meantime  saving  forty  minutes  of  my  time 
and  thirty  minutes  of  his  own,  to  say  nothing  of  end- 
less nerve  force." 

I  have  seen  men  in  control  of  million-dollar  cor- 
porations dictate  with  great  pains  letters  which  their 
stenographers  could  have  written  just  as  well  in  half 
the  time  from  a  marginal  notation  that  could  have 
been  made  by  the  executive  in  an  instant.  I  have  seen 
presidents  of  companies  that  serve  half  the  country 
spend  thirty  minutes  in  personally  revising  a  tele- 
gram in  order  to  save  a  few  words.  It  is  "the 
fashion"  among  our  business  men  to  be  rushed  to 
death,  and  unfortunately  too  many  of  us  sacrifice  our 
own  health  and  the  efficiency  of  our  business  just  to 
be  in  the  fashion. 


EXECUTIVE  AND  THE  ORGANIZATION         11 

Subordination  of  Detail. — The  proper  subordination 
of  detail  is  an  art.  We  have  only  so  many  minutes 
each  day,  and  the  executive  who  will  consistently  set 
aside  half  an  hour  every  day  to  plan  what  he  will  do 
the  remainder  of  the  day,  and  then  stick  to  that  plan, 
will  be  surprised  to  find  how  much  of  his  work  can 
be  taken  care  of  by  subordinates  and  how  much  more 
time  he  can  devote  to  constructive  thinking  and  to 
the  consideration  of  matters  of  real  importance. 

But  it  is  necessary  for  the  executive,  besides  con- 
serving his  own  time  by  the  proper  subordination  of 
details  and  the  delegation  of  them  to  others,  to  train 
an  efficient  organization.  Perhaps  the  most  im- 
portant factor  in  such  training  is  the  ability  of  a  man 
to  inspire  the  confidence  among  his  subordinates 
which  insures  open-mindedness  and  a  willingness  to 
learn. 

Formerly,  an  owner  in  passing  among  his  employees 
could  investigate  conditions  thoroughly  and  admonish 
and  inspire  each  individual  workman.  If  any  prob- 
lem arose,  he  could  personally  keep  in  touch  with  the 
situation  and  with  the  workman  or  workmen  con- 
cerned until  he  reached  the  right  decision  in  the 
matter.  All  that,  however,  has  been  changed.  To- 
day it  is  impossible  for  the  executive  of  a  large  con- 
cern to  keep  in  touch  with  all  the  conditions  of  his 
business  and  with  all  his  employees.  An  executive 
in  New  York  may  give  an  order  that  is  executed  in 
Chicago,  or  even  in  San  Francisco.  The  remarkable 
fact,  under  the  circumstances,  is  that  orders  are 
issued  correctly  and  carried  out  right  as  often  as 
they  are.  There  are  many  chances  of  error — in  the 


12  EXECUTIVE  STATISTICAL  CONTROL 

transmission  of  the  order  and  in  the  receipt  of  it. 
The  order  may  be  worded  vaguely,  or  even  a  clearly 
worded  order  may  be  carelessly  interpreted.  How 
can  the  executive,  then,  insure  that  his  order  will 
accomplish  the  objects  that  he  has  in  mind?  The 
answer,  of  course,  is  that  he  must  have  an  efficient 
and  well  trained  organization — an  organization  that 
will  transmit  the  chief 's  exact  intention  quickly  and 
intelligently  to  the  furthermost  confines  of  the  busi- 
ness. 


CHAPTER  II 

THE  MIND  AND  METHODS  OF  THE 
EXECUTIVE 

The  Narrow-Minded  Executive. — At  the  root  of  all 
organization  lies  absolute  fairness — a  willingness  to 
consider  each  question  strictly  upon  a  basis  of  the 
facts,  without  bias  and  without  favor.  A  certain  old- 
time  railroad  builder,  a  man  of  great  personality  and 
power,  was  in  the  habit  of  making  his  promotions 
on  the  basis  of  intuition  and  personal  liking.  He 
would  drop  off  at  some  tank  station  at  two  o'clock 
in  the  morning,  where  a  light  in  the  window  showed 
a  station  agent  poring  over  his  way-bills  even  at  that 
hour — as  likely  as  not  because  he  didn't  have  brains 
enough  to  get  his  work  done  during  regular  hours — 
and  promote  that  agent,  probably  over  the  heads  of  a 
score  of  men  who  could  do  their  work  in  the  time  al- 
lotted. And,  conversely,  he  would  chop  off  the  head 
of  some  executive  because  he  happened  to  be  ap- 
parently idle  when  the  "boss"  came  along.  For  all 
that  railroad  president  knew,  the  unlucky  executive 
may  have  been  devising  some  scheme  to  save  the  road 
thousands;  but  since  he  couldn't  see  the  man's  brain 
work,  he  used  the  axe.  I  was  so  unfortunate  as  to 
have  to  travel  over  this  road  on  several  occasions,  and 
I  found  the  disorganization  appalling.  A  remark 
made  one  day  by  an  engineer  of  the  road  summed  up 

13 


14  EXECUTIVE  STATISTICAL  CONTROL 

the  whole  situation.  "I  don't  know  when  I'll  get 
canned,  but  if  I  know  twenty-four  hours  beforehand 
this  blasted  railroad  will  lose  an  engine."  Unfair- 
ness in  those  in  command  is  a  menace  to  any  organ- 
ization, 

Uncontrolled  vanity  is  another  rock  upon  which 
many  a  business  is  wrecked.  To  be  sure,  a  certain 
amount  of  vanity  is  desirable.  If  mankind  had  not 
been  plentifully  supplied  with  vanity,  the  race  would 
have  died  out  long  ago,  for  in  that  case  men  would  see 
themselves  as  others  see  them,  and  the  suicide 
statistics  would  have  exceeded  the  birth  rate.  If  a 
man  is  to  inspire  confidence  in  others,  a  good  strong 
faith  in  himself  and  a  respect  for  his  own  ability  is 
absolutely  essential.  It  is  absolutely  essential  that  an 
executive  inspire  confidence  in  his  subordinates  if  he 
is  to  secure  results.  But  it  is  a  delicate  matter  to 
show  just  a  sufficient  amount  of  vanity  and  yet  not 
too  much. 

A  few  years  ago  one  of  our  humorists  made  the 
statement  that  golf  was  ruining  America  because  it 
was  prolonging  lives  that  were  detrimental  to  this 
country's  best  interests.  He  figured  it  out  that  every 
man  who  exerts  himself  sufficiently  to  become  a  cap- 
tain of  industry  begins  to  suffer  from  the  early  stages 
of  paralysis  before  he  is  fifty.  This  disorder,  he 
stated,  in  the  beginning  takes  the  form  of  violent 
megalomania  (an  extreme  case  of  vanity)  which  re- 
sults in  raids  by  one  group  of  capitalists  upon 
another,  that  disorganizes  business,  and  hurts  the 
whole  country.  Now,  this  man  claimed,  if  golf  hadn't 
been  invented  to  prolong  the  careers  of  these  megalo- 


EXECUTIVE  MIND  AND  METHODS  15 

maniacs  they  would  be  where  they  should  be,  in  their 
graves,  or  locked  up  in  asylums,  before  they  could  do 
any  harm.  This  argument  savors  of  the  wit  of  the 
court  jester  in  its  combination  of  absurdity  and  un- 
pleasant truth.  But  any  one  who  has  ever  been  in  a 
position  to  observe  the  inefficiencies  existing  in  any 
business  in  which  the  pet  ideas  of  the  "old  man" 
must  be  considered  at  all  times,  where  no  new  project 
can  be  broached  without  a  careful  consideration  of 
whether  it  will  mean  treading  on  the  toes  of  any  of 
his  whims,  where  favor  stalks  abroad  and  ability 
cowers  in  fear  of  self-expression,  knows  of  the  terrible 
inefficiency  for  which  vanity  is  sometimes  responsible. 

Feudal  Type  of  Organization. — The  origin  of  the 
destructive  type  of  organization — our  modern  remnant 
of  the  feudal  system — may  often  be  traced  to  the  un- 
controllable vanity  of  its  liege  lord,  be  he  owner  or 
chief  executive.  There  seems  to  be  something  in 
human  nature  which,  no  matter  how  old  we  are, 
makes  us  desire  to  have  some  one  to  run  to  for  as- 
sistance in  time  of  trouble,  just  as  we  ran  to  our 
father  in  our  childhood  when  the  small  boy  across  the 
street  got  the  better  of  us  in  a  fight. 

In  feudal  times,  every  serf  in  time  of  foray  ran  for 
protection  to  the  baron  to  whom  he  professed  alle- 
giance. This  baron  was  bound  to  defend  him  no  mat- 
ter what  crime  the  serf  had  committed,  or  lose  the 
man's  allegiance  and  be  one  serf  the  poorer.  Con- 
versely in  the  latter  event  some  rival  baron  would  be 
one  serf  the  richer,  so  the  first  baron  would  suffer  in 
two  ways.  Whenever  the  chief  executive  in  a  large 
corporation  is  weak  enough  to  allow  his  fears  to  be 


16  EXECUTIVE  STATISTICAL  CONTROL 

played  upon  by  strong  subordinates,  or  vain  enough  to 
allow  his  judgment  to  be  influenced  by  the  flattery  of 
"court  favorites/'  the  politics  of  the  feudal  system 
are  reproduced  with  the  chief  executive  as  king  and 
his  assistant  executives  as  warring  barons,  and  the  or- 
ganization devotes  itself  to  the  joys  of  the  political 
game  instead  of  to  earning  dividends  for  the  stock- 
holders. 

Under  such  circumstances  each  executive,  taking 
his  cue  from  his  superior,  builds  up  about  him  a  staff 
of  assistants,  specialists,  clerks,  and  stenographers, 
and  his  prestige  as  compared  with  that  of  his  rival 
executives  is  measured  by  the  extent  of  his  vassalage. 
Whenever  he  feels  strong  enough,  having  done  the 
4 'king"  some  special  service,  or  having  weakened  a 
rival  sufficiently,  he  annexes  a  neighboring  "barony" 
bodily — baron,  assistants,  clerks,  and  stenographers, 
included,  all  of  whom  pass  under  the  yoke  rather  than 
be  cast  forth  from  the  kingdom.  Advancement  in 
such  a  company  becomes  a  matter  of  skill  in  politics, 
rather  than  of  ability.  Consistent  effort  to  promote 
the  company's  interests  gives  way  to  desperate  at- 
tempts on  the  part  of  each  executive  to  advance  his 
own  personal  interests.  A  state  of  continual  turmoil 
results,  foray  follows  foray,  and  the  company  suffers. 

Loss  to  the  company  is  sure  to  result,  since  these 
executives  are  the  highest  priced  employees  of  the 
company — men  paid  large  salaries  on  account  of  their 
superior  brains  and  their  ability  to  conduct  the  com- 
pany's  business  successfully.  When  the  feudal  spirit 
prevails,  the  time  these  men  give  to  politics — a  third 
of  their  time  is  a  conservative  estimate  in  many  cases 


EXECUTIVE  MIND  AND  METHODS  17 

— one-third  of  the  executive  payroll  is  wasted.  In 
addition,  the  ambition  for  personal  aggrandizement 
leads  to  the  creation  of  unnecessary  staffs  and  to  the 
hampering  of  existing  departments  with  members 
who  are  not  needed.  Such  a  policy  places  upon  the 
payroll  a  burden  that  could  just  as  well  be  avoided. 
Worst  of  all,  the  best  thought  and  the  best  effort  of 
each  executive,  which  should  constitute  the  greatest 
asset  and  profit-producer  of  the  company,  is  devoted, 
not  to  furthering  the  company's  welfare,  but  to  de- 
vising ways  and  means  of  a  devious  nature  to  bring 
about  a  rival  executive's  downfall. 

Men  of  ability  are  driven  forth  from  such  an  organ- 
ization simply  because  they  won't  play  that  kind  of 
game.  Those  that  reach  the  top  do  so  through  ag- 
gressiveness alone.  With  men  in  control  who  secured 
their  positions  through  sheer  aggressiveness,  decisions 
in  regard  to  the  company's  policy,  vital  to  its  very 
existence,  are  forced  by  sheer  weight  of  personality, 
as  a  result  of  one  man's  ability  to  shout  the  loudest 
or  the  longest,  instead  of  being  reached  by  means  of  a 
careful  analysis  of  existing  conditions.  When  policy 
is  determined  by  lung  power  instead  of  by  brain 
power,  it  is  not  aurprising  if  the  business  venture 
goes  on  the  rocks.  The  safest  type  of  vanity  for  the 
executive  is  that  of  Warwick  the  King-Maker,  the 
power  behind  the  throne,  the  type  which  in  politics 
holds  no  office,  the  type  which  is  too  proud  to  be  vain 
or  to  grab  the  limelight. 

Executive  and  Subordinates.— One  of  the  ablest 
managers  I  know  calls  himself  the  man  without  a  job. 
He  is  the  most  quiet  and  unassuming  person  in  his 


18  EXECUTIVE  STATISTICAL  CONTROL 

organization.  He  will  tell  you  that  about  a  dozen 
committees  run  the  business,  .some  of  which  meet 
once  a  week,  some  twice  a  week,  and  some  oftener. 
Undoubtedly  what  he  says  is  true.  But  he  doesn't 
say  anything  about  who  trained  the  men  that  make 
up  these  committees.  Nevertheless  you  only  have  to 
watch  him  a  few  minutes  with  one  of  his  executives, 
and  to  note  the  utter  frankness  and  trust  with  which 
he  is  approached  and  the  fine  straight-forward  sug- 
gestions he  encourages,  to  understand  who  is  re- 
sponsible for  that  company's  efficiency.  You  realize 
then  that  he  put  over  the  biggest  deal  in  the  history 
of  that  company  when  he  threw  his  vanity  overboard. 
He  is  getting  100  per  cent  results  out  of  every  man 
in  his  force,  and  I  don't  need  to  tell  you  that  stock 
in  that  company  is  worth  a  price  which  would  make  a 
"war  baby"  blush  with  shame. 

There  is  something  about  an  appetite  for  praise 
which  resembles  a  craving  for  opium.  The  more  the 
victim  takes,  the  more  it  requires  to  satisfy  him. 
After  a  while,  a  delicate  compliment  become  abso- 
lutely tasteless.  The  victim  craves  larger  and  larger 
doses  of  praise  until  finally  you  have  to  put  it  on 
with  a  shovel.  The  executive  whb  demands  compli- 
ments, who  is  continually  angling  for  praise,  and 
who  is  always  thinking  about  his  dignity,  has  very 
little  time  to  do  anything  else.  The  right  sort  of  men 
will  not  remain  with  one  of  these  megalomaniacs; 
consequently  the  business  suffers.  It  was  all  right  to 
play  "big  Injun"  when  the  business  could  be  housed 
in  a  single  tepee,  but  that  day  is  gone  by;  the  suc- 
cessful chief  of  to-day  must  have  strong,  self-respect- 


EXECUTIVE  MIND  AND  METHODS  19 

ing  executives  to  assist  him — men  who  demand  the 
right  to  speak  the  truth  freely — and  that  sort  will 
remain  only  with  an  executive  who  sinks  his  vanity 
and  plays  the  game  straight.  Furthermore,  in  order 
to  secure  real  assistance  from  his  subordinates,  the 
executive  must  be  prepared  to  back  them  to  the  limit 
in  their  decisions.  Nothing  so  takes  the  heart  out  of 
a  man  as  having  the  orders  he  gives  countermanded 
by  his  boss.  Such  humiliation  brings  upon  him  the 
derision  of  his  associates  and  destroys  his  initiative. 

Besides,  there  is  always  a  type  of  man  present  in 
every  organization  who  enjoys  going  over  the  head 
of  his  immediate  boss  for  orders,  just  for  the  satis- 
faction of  slapping  his  superior  in  the  face  with 
contrary  orders  from  the  "old  man."  Where 
this  sort  of  thing  is  countenanced,  you  will  always 
find  political  intrigue  instead  of  efficiency.  It  is,  to 
be  sure,  sometimes  a  delicate  matter  to  support  a 
subordinate  in  a  decision,  especially  if  the  decision 
is  wrong.  It  can  generally  be  done,  however,  with- 
out sacrificing  any  one's  prestige,  if  the  chief  execu- 
tive has  tact — and  the  gratitude  of  the  subordinate 
under  such  circumstances  is  one  of  the  things  that 
make  an  organization  impregnable. 

The  best  remedy  for  political  intrigue,  aside  from 
the  supervision  of  an  executive  with  a  firm  hand  and 
the  wisdom  of  the  serpent,  is  a  carefully  drawn 
organization  chart.  If  each  man  knows  definitely 
just  who  is  over  him,  and  over  just  whom  he  has 
authority,  and  knows  that  he  will  get  his  knuckles 
rapped  the  first  time  he  places  his  hand  on  his  neigh- 
bor's fence,  he  won't  try  to  encroach  upon  his  fellow- 


20  EXECUTIVE  STATISTICAL  CONTHOL 

executive's  preserves;  and  conflict  of  authority  and 
much  bitterness  will  be  avoided. 

It  is  needless  to  say  that  an  executive,  to  be  suc- 
cessful, must  have  the  respect  of  his  assistants.  He 
need  not  be  "popular;"  in  fact,  it  is  perhaps  better 
that  he  should  not  be  too  much  of  a  "hail  fellow 
well  met."  There  is  a  reason  for  the  army  rule  that 
officers  shall  not  drink  with  "non-coms"  and  that 
"non-coms"  shall  not  drink  with  privates,  and  human 
nature  is  the  same  in  business  as  in  the  army.  A 
reputation  for  fair  dealing,  a  willingness  to  listen  to 
the  whole  story  in  case  of  a  grievance,  and  an  absence 
of  anything  savoring  of  "side"  counts  for  much  more 
in  the  officers  of  a  corporation  than  any  amount  of 
cheap  popularity. 

Exact  Knowledge  a  Necessity. — An  exact  knowl- 
edge of  conditions  and  the  consequent  opportunity  for 
the  timely  administering  of  praise  or  of  constructive 
criticism  are  extremely  valuable  to  the  executive  who 
would  secure  satisfactory  results.  Undeserved  criti- 
cism is  always  considered  unjust  by  the  subordinate 
and  destroys  his  initiative;  unmerited  praise  tends  to 
render  the  executive  ridiculous  even  in  the  eyes  of 
those  who  receive  it.  Both  are  bad  for  discipline, 
since  they  weaken  the  power  of  the  executive. 

Cost  figures  may  have  historical  interest,  but  they 
are  not  worth  one  tenth  the  expense  of  assembling 
unless  they  aid  actively  in  the  administration  of  the 
business.  The  problem  of  the  executive,  then — once 
his  organization  is  perfected — is  to  secure  at  all  times 
live  and  accurate  data  concerning  the  exact  conditions 
of  the  business;  moreover,  he  must  accomplish  his 


EXECUTIVE  MIND  AND  METHODS  21 

object  with  the  least  possible  expenditure  of  his  time. 
The  facts  must  be  subordinated  according  to  their 
relative  importance  as  measured  by  their  effect  upon 
the  ultimate  dollar  in  the  form  of  dividends  to  his 
stockholders.  Furthermore,  the  facts  must  be  so  ar- 
ranged that  the  general  laws  underlying  the  business 
may  be  easily  and  accurately  deduced  and  standards 
of  accomplishment  may  be  set  which  will  be  a  con- 
tinual incentive  to  greater  accomplishment. 

The  head  of  a  large  corporation  necessarily  forms 
his  judgments  largely  from  the  perusal  of  various 
reports,  tabulations  of  figures,  and  statistical  data 
compiled  by  his  assistants.  He  cannot  talk  with  all 
his  subordinates  at  length,  and  therefore  if  he  is  to 
succeed  in  grasping  the  details,  a  knowledge  of  which 
is  necessary  for  the  administration  of  a  large  busi- 
ness, he  must  do  so  by  developing  what  psychologists 
call  an  "eye  mind"  rather  than  an  "ear  mind." 
That  is,  his  mind  must  be  so  constituted  that  it  will 
grasp  facts  much  more  quickly  and  surely  through 
the  medium  of  the  eye  than  through  the  medium  of 
the  ear.  His  must  be  the  type  of  mind  that  receives 
a  clearer  and  more  lasting  impression  from  a  picture 
than  from  an  oral  statement. 

If,  then,  a  picture  can  be  arranged  which  will  give 
the  executive  at  a  glance  the  exact  state  of  his  entire 
business,  with  details  subordinated  in  the  order  of 
their  importance,  so  that  the  more  important  facts 
stand  boldly  in  the  foreground  where  they  cannot  be 
overlooked,  and  the  less  important,  though  present, 
are  in  minor  positions,  where  they  will  receive  atten- 
tion only  when  necessary — the  executive  will  be  en- 


22  EXECUTIVE  STATISTICAL  CONTROL 

abled  to  understand  and  to  direct  his  business  with 
an  intelligence  and  a  sureness  of  touch  which  will 
insure  his  stockholders'  getting  every  possible  cent 
out  of  it. 

Scientific  Forecasting. — There  is  nothing  new  about 
the  use  of  the  graph  or  curve  chart  in  business  but, 
so  far,  it  has  been  most  used  by  the  following  two 
classes:  First,  engineers,  in  making  physical  tests — 
from  showing  the  oscillations  of  a  needle  registering 
the  millevolts  generated  by  a  platinum-rhodium 
thermocouple  in  a  high  temperature  furnace,  to 
demonstrating  the  fluctuations  in  the  steam  pressure 
in  a  ten-thousand-horsepower  plant;  and  second,  stu- 
dents of  finance,  in  platting  the  behavior  of  a  group 
of  stocks  or  proving  the  state  of  the  bank  reserves 
over  a  certain  period. 

A  few  years  ago  some  of  our  more  progressive 
corporations  began  showing  by  means  of  graphs  the 
fluctuations  of  their  sales  in  different  districts,  and 
later  the  same  method  was  applied  to  costs.  It  is 
only  recently,  however,  that  anything  like  a  compre- 
hensive graph  method  applicable  to  an  entire  busi- 
ness has  been  worked  out  and  put  into  effect.  Within 
the  last  few  years  several  large  corporations  have 
gone  a  step  further.  They  have  not  only  shown  by 
means  of  graphs  what  they  have  done  and  are  doing 
in  their  work,  but  also  what  they  propose  to  do.  And 
the  most  remarkable  thing  about  these  prophecies  by 
graph  is  the  regularity  and  exactness  with  which  the 
ideals  aimed  at  have  been  realized. 

Not  long  ago  I  was  privileged  to  go  over  a  series 
of  graphs  of  this  nature  arranged  by  the  president  of 


EXECUTIVE  MIND  AND  METHODS  23 

one  of  the  largest  corporations  in  the  Middle  West. 
These  graphs  predicted  for  a  period  of  more  than  a 
year,  and  some  three  months  in  advance,  the  quantity 
of  sales,  the  selling  price,  the  cost  of  production  and 
the  amount  of  production  of  a  commodity  which  is 
noted  for  its  instability  of  demand,  for  the  irregu- 
larity of  the  cost  of  production  and  for  the  fluctua- 
tion in  market  price.  The  actual  accomplishment  as 
shown  by  the  graphs  hit  so  often  and  with  such  regu- 
larity the  standard  set  that  if  I  had  not  known  the 
president  of  the  company  to  be  a  man  of  unimpeach- 
able integrity  I  should  have  found  it  hard  to  believe 
that  the  curves  actually  represented  predictions. 

The  possibility  of  making  prophesies  of  this  sort 
seems  almost  incredible  to  one  unfamiliar  with 
standardization  work  in  general.  But  it  seems  only 
logical  to  any  one  who  knows  the  accuracy  with 
which — say,  in  time-study  work — an  examination  of 
existing  conditions  enables  one  to  predict  what  can  be 
done,  and  who  has  seen  how  exactly  accomplishment 
coincides  with  the  standard  once  conditions  are  stand- 
ardized and  the  necessary  incentive  is  supplied. 

Analysis  An  Aid  In  Forecasting. — It  is  absolutely 
essential,  first  of  all,  to  analyze  existing  conditions. 
It  is  extremely  difficult  for  the  executive  to  do  this 
scientifically  when  the  usual  types  of  balance  sheets 
and  cost  records  are  in  use.  Ordinarily  he  looks  at 
these  when  they  arrive,  about  the  twentieth  of  the 
month,  and  if  they  seem  to  him  satisfactory  in  the 
light  of  what  he  happens  to  remember  about  past 
performances,  he  lays  them  aside  and  returns  to  his 
routine.  A  sudden  drop  in  profits  or  a  rise  in  costs 


24  EXECUTIVE  STATISTICAL  CONTROL 

forecasts  both  a  raid  on  the  sales  department  or  upon 
the  factory,  and  a  demand  for  an  explanation. 
Usually  the  heads  of  both  these  departments  know 
what  kind  of  answer  will  satisfy  the  "old  man." 
They  parade  forth  the  ancient  bogeys  of  competition 
or  of  interrupted  output  and  the  executive,  lulled  to 
a  feeling  of  security,  goes  back  to  his  desk. 

This  is  all  that  happens  unless  there  is  a  prolonged 
period  of  low  profit,  in  which  case  the  directors  come 
in  and  hold  a  post  mortem.  After  an  investigation — 
marked  by  considerable  bad  feeling — of  the  office  rent 
and  the  amount  spent  for  postage,  telegrams  and  the 
salaries  of  the  stenographers  (I  have  seen  board 
meetings  over  exactly  this  sort  of  trash),  a  "period 
of  retrenchment"  is  declared  to  be  vital.  The  office 
force  is  cut  down  and  the  superintendents  are  de- 
prived of  their  stenographers.  A  man  here  and  there 
whose  name  appears  on  the  "non-productive7'  side  of 
the  ledger  is  dismissed  and  the  "overhead"  is  re- 
duced. When  all  is  done  the  directors  don't  know 
any  more  about  the  real  cause  of  the  falling  off  in 
business  than  they  did  before.  The  worst  feature  of 
all  is  that  the  retrenchment  has  killed  the  only  part 
of  their  organization  which  could  tell  them! 

Perhaps  the  directors  are  not  so  much  to  blame, 
however,  as  they  seem  to  be.  The  statistics  prepared 
by  only  too  many  cost-keeping  departments  are  mis- 
leading rather  than  enlightening,  even  to  the  execu- 
tive— and  perhaps  the  less  of  them  the  better. 
Masses  of  figures  come  to  him  each  month  which  can- 
not possibly  be  remembered  until  the  next  month. 
As  a  result,  each  set  of  conditions  has  to  be  con- 


EXECUTIVE  MIND  AND  METHODS  25 

sidered  largely  by  itself  or  merely  as  contrasted  with 
that  of  some  other  single  month.  The  very  volume 
of  the  statistics  makes  it  a  physical  impossibility  to 
lay  the  records  out  on  a  table  and  to  compare  the 
figures  for  more  than  a  few  months  at  a  time.  It  is 
impossible  to  determine  by  such  a  system  the  laws 
underlying  fluctuations  in  costs,  in  sales  prices  or  in 
profits.  Yet  predictions  as  to  future  conditions  can- 
not possibly  be  made  unless  these  laws  are  known. 

It  is  my  purpose  to  indicate  in  the  following  pages, 
by  means  of  concrete  illustrations,  just  how  the  facts 
— all  the  facts — for  a  considerable  period  may  be 
brought  before  the  executive  at  one  time,  in  the  exact 
order  of  their  importance  and  with  sufficient  in- 
sistence to  render  it  easier  for  him  to  make  the  right 
decision  than  the  wrong  one.  I  shall  discuss  various 
methods  of  accomplishing  this  end,  and  I  shall  use 
examples  from  my  own  experience  as  an  executive 
and  as  a  consulting  engineer. 

Inasmuch  as  the  illustrations  used  are  in  most  cases 
drawn  from  actual  and  recent  occurrences  in  various 
corporations,  for  obvious  reasons  hypothetical  figures 
only  will  be  used.  Furthermore,  an  effort  will  be 
made  in  each  case  to  illustrate  the  principle  only, 
without  indulging  in  too  detailed  discussion  of  specific 
manufacturing  processes.  Of  course,  in  every  busi- 
ness conditions  differ.  The  manufacturer  who  knows 
only  one  line  will  tell  you  his  business  "is  different" 
and  "is  peculiar."  The  banker  who  daily  strips  each 
such  business  of  its  details  and  reduces  it  to  its  fun- 
damentals with  a  few  well  chosen  questions,  will  tell 
you  that  the  principles  underlying  all  are  identical. 


CHAPTER  III 
THE  EXECUTIVE  FUNCTION  OF  STATISTICS 

A  Financial  Failure. — About  ten  years  ago  New 
York  was  the  scene  of  a  great  taxicab  mystery.  Con- 
trary to  what  you  might  imagine,  the  details  were 
aired,  not  in  the  criminal  courts,  but  in  the  courts 
of  bankruptcy — for  the  case  was  one  of  financial 
failure.  Until  the  mystery  was  unraveled  there  was 
plenty  of  unpleasant  excitement  for  those  involved. 
In  order  that  the  reader  may  the  better  understand 
this  case,  it  may  be  well  to  review  briefly  the  condi- 
tions that  existed  at  the  time  it  occurred.  At  that 
time  automobiles  had  emerged  only  recently  from  the 
era  in  which  every  time  you  took  a  ride  in  one,  you 
made  a  small  bet  with  yourself  as  to  whether  you 
would  come  home  in  the  auto  or  on  foot.  Street 
gamins  still  yelled  "Get  a  horse, "  and  no  show  was 
complete  without  a  scene  in  which  the  comedian 
crawled  under  a  motor  and,  after  an  explosion,  was 
dragged  out  with  a  black  eye.  The  taxicab  business 
was  in  its  infancy,  and  the  infant  mortality  certainly 
was  high!  A  company  would  be  formed,  would  show 
satisfactory  balance  sheets  for  two  or  three  years,  pay 
generous  dividends,  and  then  fail.  The  worst  of  it 
was  that  no  leaks  could  be  detected,  there  were  no 
signs  of  improper  accounting  methods,  and  the  busi- 
ness in  each  case  seemed  to  have  been  conducted 
carefully  and  honestly.  Propositions  that  figured  out 

26 


FUNCTION  OF  STATISTICS  27 

well  on  paper  lived  up  to  their  promoters'  expecta- 
tions for  two  or  three  years — and  then  went  to 
smash. 

The  solution  of  the  mystery — like  the  end  of  all 
good  detective  stories — was  so  simple,  when  it  was 
discovered,  that  no  one  could  be  found  even  to  play 
the  part  of  Dr.  Watson  and  murmur  " Marvelous" 
when  the  analyist  discovered  the  culprit.  The  ex- 
planation was  simply  this — motor  car  styles  were 
changing  so  rapidly  at  that  time,  that  a  car  was  com- 
pletely out  of  date  in  three  years.  No  one  would 
ride  in  one  three  years  old,  and  so  the  heaviest  part 
of  the  taxicab  companies'  investment  had  to  be  re- 
newed every  three  years.  Any  cars  that  didn't  go 
out  of  style  within  that  time  were  rattled  to  pieces 
beyond  hope  of  repair  by  New  York  pavements.  As 
a  result,  a  certain  taxicab  company  that  had  a  hun- 
dred thousand  dollars'  worth  of  cars  in  1904  had  ten 
thousand  dollars'  worth  of  junk  in  1907.  The  ninety 
thousand  dollars'  worth  of  loss — of  which  they  were 
ignorant  because  new  cars  \vere  bought  gradually  and 
companies  were  careful  not  to  neglect  repairs — took 
them  into  the  bankruptcy  court  at  the  end  of  the 
three  years.  The  man  who  had  been  called  in  to 
solve  the  mystery  recommended  a  depreciation  charge 
of  thirty  per  cent.  His  recommendation  was  acted 
upon  by  that  company,  and  afterwards  by  others,  and 
since  that  time  there  have  been  fewer  mysterious 
failures. 

About  four  years  ago  a  man  who  is  president  of 
half  a  dozen  corporations  told  me  with  a  great  deal  of 
pride  that  he  had  just  begun  to  charge  off  deprecia- 


28  EXECUTIVE  STATISTICAL  CONTROL 

tion.  He  had  been  doing  business  thirty  years  and 
had  amassed  nearly  a  million  dollars,  without  even 
finding  out  that  every  building  he  had  put  up  had, 
so  to  speak,  ceased  to  exist  at  the  end  of  twenty-five 
years.  In  a  case  of  this  sort  the  American  spirit  of 
the  past  would  argue  "He  never  knew  what  deprecia- 
tion was,  hey?  But  he  made  a  million,  didn't  he? 
Well  what's  good  enough  for  him  is  good  enough  for 
me!"  That  sort  of  argument  may  be  what  they  used 
to  call  "pretty  slick"  in  up-state  New  York,  but 
belief  in  it  can  lead  only  to  disaster  in  this  day  and 
age.  Profits  of  thirty  and  forty  per  cent  on  the 
capital  invested  are  a  tiling  of  the  past,  and  our 
conservers  of  natural  resources  and  our  labor  forces 
mean  to  keep  them  dead  and  buried.  In  those  good 
old  days  a  man  could  make  enough  profit  so  that 
seven  or  eight  per  cent,  more  or  less,  didn't  matter. 
Now,  that  seven  or  eight  per  cent  is  the  whole  profit, 
and  the  corporation  manager  who  doesn't  guard  every 
penny  of  it  for  his  stockholders  is  thrown  into  the 
discard  as  a  failure. 

Not  long  ago  the  general  manager  of  one  of  our 
largest  Middle  Western  coal  companies  made  an  in- 
teresting remark  to  me  concerning  an  announcement 
that  had  recently  appeared  in  the  daily  papers.  The 
owner  of  a  chain  of  coal  properties  had  been  wrecked 
financially.  The  man,  a  tireless  worker,  had  been  a 
pioneer  in  the  district,  and  had  been  astute  enough 
in  the  early  days  of  his  career  to  secure  some  of  the 
best  coal  lands  in  his  state.  "That  man,"  said  my 
friend,  "has  kept  this  market  in  a  turmoil  for  thirty 
years — and  at  last  he  has  reached  the  end  of  his 


FUNCTION  OF  STATISTICS  29 

rope.  He  could  always  undersell  his  competitors 
because  he  never  knew  what  it  cost  him  to  do  busi- 
ness. He  has  been  losing  money  steadily  and  mort- 
gaging his  property  right  and  left  for  years.  This 
is  the  end — and  a  simple  cost  system  would  have 
saved  him." 

In  these  three  illustrations  just  cited  you  have  the 
picture  of  a  certain  phase  of  an  American  industrial 
era  which  is  passing — an  era  characterized  by  failure 
through  ignorance  and  success  through  luck.  Al- 
though American  business  has  produced  some  of  the 
finest  examples  of  the  corporation  executive  in  the 
world,  nevertheless  there  is  good  reason  for  Brad- 
street's  statement  that  more  than  ninety  per  cent  of 
our  business  ventures  fail.  Our  natural  resources 
have  made  possible  loose  methods  of  doing  business. 
Now  we  must  trim  ship  and  prepare  to  meet  the 
storm  of  competition  that  will  break  upon  the  country 
in  the  next  few  years. 

Antiquated  Methods  — In  the  days  when  our  grand- 
fathers operated  small  factories  in  connection  with 
the  work  on  the  farm,  they  needed  no  cost  system  to 
enable  them  to  keep  track  of  the  work  they  and  their 
hired  men  did  each  day.  They  had  to  be  on  hand,  in 
any  event,  and  whatever  they  could  earn  through  the 
factory  at  odd  times  was  "pure  velvet,"  or  at  any 
rate  could  be  reckoned  in  the  same  way  as  the  pro- 
ceeds from  the  corn  crop  or  the  apple  crop  were 
reckoned. 

Later  our  fathers  expanded  the  quarters  for  this  de- 
partment of  the  farm  into  a  two-story  building,  hired 
a  few  more  hands,  and  gradually  built  up  a  factory, 


30  EXECUTIVE  STATISTICAL  CONTROL 

which  was  proudly  pointed  out  to  citizens  from  the 
nearby  towns  as  the  home  of  "one  of  our  leading 
industries."  Our  fathers  were  brought  up  to  honor 
father  and  mother,  and  they  weren't  sent  to  college 
to  imbibe  what  they  called  "fancy  notions."  What 
was  good  enough  for  the  "old  man"  was  good  enough 
for  them.  The  period  was  one  of  conservatism  and  of 
faith  in  the  old  ways,  and  as  long  as  communities 
were  more  or  less*  isolated  and  there  was  only  one 
factory  in  a  community,  ultra-conservative  methods 
were  eminently  successful.  Factories  made  money 
and  reinvested  the  earnings. 

A  period  of  expansion  followed.  The  country's 
population  increased,  but  the  factories  increased 
faster  than  the  people,  and  competition  became  un- 
bearable. Consolidation  naturally  followed,  until  we 
now  have  hundreds  of  ten-million-dollar  corporations 
turning  out  hundreds  of  tons  of  products  every  day. 
The  cost  system  that  grandfather  used  on  the  farm 
won't  do,  and  the  manufacturer  who  tries  to  make  it 
do  is  following  the  road  to  the  land  of  oblivion  in- 
habited by  the  American  Indian  and  the  dodo. 

Dislike  of  Elaborate  Cost  Systems. — One  reason 
why  our  conservative  manufacturers  have  hesitated  to 
install  elaborate  cost  systems  is  that  they  have  an  in- 
herited dislike  for  the  non-producer — and  they  con- 
sider each  of  the  men  who  figure  detailed  costs  a  non- 
producer.  In  the  olden  days,  any  one  of  the  boys  who 
sat  around  on  grandfather's  farm  was  either  urged  to 
go  west  or  else  was  made  into  a  lawyer,  a  minister  or 
a  doctor.  He  wasn't  popular  on  the  farm  unless  he 
**took  hold  and  helped."  Consequently  a  good  many 


FUNCTION  OF  STATISTICS  31 

of  us  have  inherited  a  sneaking  feeling  that  the  fel- 
low who  sits  around  in  a  white  collar  and  pores  over 
a  big  book  of  figures  somehow  isn't  keeping  his  end 
up  around  a  manufacturing  plant,  and  we  are  prone 
to  refer  to  his  salary  as  "overhead  expense"  or  as 
"burden  on  the  productive  labor,"  and  our  instinct 
hasn't  been  so  much  at  fault  in  this  matter  as  certain 
types  of  expert  accountants  would  have  us  believe. 
There  is  no  doubt  that  a  good  deal  of  money  has  been 
wasted,  and  is  being  wasted  to-day,  in  preparing 
elaborate  cost  figures  which  the  active  executive 
either  never  looks  at,  or  which  he  reviews  only  in 
such  a  perfunctory  manner  that  he  profits  little  from 
the  consideration  he  gives  them. 

In  some  cases,  it  is  true,  cost  figures,  even  when 
prepared  very  carefully  and  very  accurately,  from  the 
accounting  standpoint  do  positive  harm  in  an  organ- 
ization. One  old  brick-maker,  who  was  superintend- 
ent of  a  paving-brick  plant,  told  me  that  all  he 
wanted  to  know  was  how  many  brick  he  got  out  of 
the  machine  every  day  and  how  many  men  he  had  on 
the  job — and  that  he  didn't  give  a  hoot  in  hades  what 
those  bookkeepers  down  in  the  office  said.  Later  on 
I  found  he  had  good  reason  for  his  views.  It  seems 
that  an  ingenious  cost  clerk  had  devised  an  account 
which  he  called  "in  suspense,"  and  every  time  the 
old  fellow's  cost  of  production  went  up  he  lopped  off 
a  few  thousand  dollars  and  stowed  them  away  until  a 
period  of  low  costs  occurred,  when  he  took  them 
down  off  the  shelf,  as  it  were,  and  ran  them  into  the 
costs.  In  this  way  the  cost  clerk  secured  a  beauti- 
fully even  cost-showing  which  did  not  offend  his 


32  EXECUTIVE  STATISTICAL  CONTROL 

artistic  eye,  and  when  the  geenral  manager  took  the 
sheet  out  to  the  superintendent  the  latter  could  tell, 
of  course,  that  the  figures  didn't  reflect  operating 
conditions  at  all.  As  a  result  this  superintendent's 
contempt  for  "  liars  who  figgered"  was  something 
abysmal. 

Fundamental  Principles  of  a  Cost  System.— There 
are  certain  fundamental  principles  that  we  must 
recognize  in  devising  any  cost  system.  In  the  first 
place,  the  expense  of  compiling  cost  figures  is  a 
direct  burden  on  the  business,  and  must  be  sub- 
tracted from  the  net  profits.  To  prove  their  right  to 
existence,  therefore,  costs  must  earn  profit  just  as 
surely  as  do  those  departments  known  as  the  produc- 
tive departments,  where  the  raw  materials  are  pro- 
cessed by  direct  labor. 

There  are  three  ways  in  which  costs  can  justify 
their  existence: 

I.  They  can  help  the  management — and  the  factory 
executive — to  operate  the  manufacturing  departments 
with  the  greatest  possible  economy. 

II.  They  can  help  the  management — and  the  sales 
department — to  sell  more  efficiently  by  furnishing  an 
incentive  for  higher  prices  and  for  specialization  in 
the  more  profitable  products. 

HI.  They  can  assist  the  management  in  the  deter- 
mination of  the  company's  financial  and  general 
policy. 

In  short,  then,  the  costs  must  be  arranged  in  such  a 
form  that  they  will  function  actively  in  assisting  the 
management  in  the  administration  of  the  business. 


FUNCTION  OF  STATISTICS  33 

When  necessary  they  should  go  even  further,  and 
speak  with  sufficient  insistence  to  force  the  manage- 
ment to  make  the  correct  decision  when  there  is  a 
choice  of  methods. 

To  manage  a  modern  factory  employing  three  or 
four  hundred  men  is  an  intricate  and  difficult  task. 
The  superintendent  needs  all  the  help  that  can  be 
given  him.  He  should  be  able  to  look  upon  the 
general  manager  as  his  best  friend — as  a  friend  who 
can  and  will  give  him  advice  and  assistance  when  he 
wants  it, •  and  who  is  able  and  willing  to  guide  him 
back  to  the  right  path  with  the  firm  kindness  of  a 
father  when  he  has  gone  astray. 

The  general  manager  is  a  busy  man.  It  is,  of 
course,  impossible  for  him  to  be  conversant  with  every 
detail  of  the  business — and  yet  he  must  be  ready  to 
act — and  act  quickly  and  without  hesitation — when 
the  occasion  demands.  Furthermore,  he  must  make 
right  decisions  fifty-one  per  cent  of  the  time,  or  he  is 
a  failure  and  the  business  is  a  failure.  Inasmuch  as 
there  are  only  twenty-four  hours  in  the  day,  and 
since  there  is  a  limit  to  every  general  manager's 
physical  endurance,  the  information  that  comes  to 
him  must  be  put  through  a  screening-out  process  be- 
fore it  is  submitted  to  him.  It  is  his  duty  to  see  that 
what  is  important  reaches  him — and  nothing  else. 

Application  of  the  Principles. — An  effective  cost 
system  is  one  that  brings  to  the  factory  superintend- 
ent and  to  the  general  manager  only  the  facts  that 
each  must  know  in  order  to  do  his  work  with  the 
greatest  effectiveness — no  more  and  no  less.  The 
form  in  which  the  information  reaches  the  executive 


34  EXECUTIVE  STATISTICAL  CONTROL 

is  relatively  unimportant.  It  is  just  on  account  of 
weakness  in  this  particular  that  the  advocates  of  cost- 
keeping  systems  have  received  their  second  black  eye. 
Our  friend,  the  old-fashioned  brick-maker,  realized 
that  if  he  knew  every  evening  the  number  of  brick 
his  machines  had  turned  out  that  day  and  how  many 
men  he  had  had  at  work,  he  could  run  his  factory 
more  efficiently  than  he  could  if  he  depended  on 
elaborately  detailed  cost  data  prepared  from  two  to 
six  weeks  after  the  brick  were  made,  by  an  account- 
ant who  knew  nothing  about  operating  conditions  at 
the  factory. 

The  best  expert  accountant  is  one  who  has  been  a 
factory  executive.  If  he  has  not  had  actual  ex- 
perience with  manufacturing  problems  he  is  prone  to 
prescribe  elaborate  forms  which  he  delights  to  draw 
up  with  only  a  cursory  thought  for  the  bills  that  the 
manufacturer  must  pay  for  stationery  and  clerk  hire. 
Moreover,  he  is  likely  to  give  no  thought  whatsoever 
to  making  the  cost  system  help  the  harassed  factory 
executive  solve  his  problems.  The  trouble  with  too 
many  cost  systems  is  that  such  information  as  is  de- 
signed to  be  of  assistance  in  the  operation  of  the 
factory  reaches  the  executive  when  the  occurrences 
recorded  are  lost  in  the  dim  past  of  ancient  history — 
and  the  more  elaborate  the  cost  system  the  more 
antediluvian  is  the  history. 

The  efficient  cost  system,  furthermore,  should  be 
such  as  to  bring  to  the  executive  the  vital  facts  of 
operation  in  the  exact  order  of  their  importance.  If 
this  rule  is  followed,  the  result  will  be  that  even  if 
the  general  manager  is  overworked,  he  will  be  en- 


FUNCTION  OF  STATISTICS  35 

abled  to  spend  his  time  profitably  in  a  consideration 
of  the  important  facts;  he  will  not  be  obliged  to 
waste  his  time  in  wading  through  unimportant  de- 
tails. 

The  cost  system  must  be  so  arranged,  also,  as  to 
impress  forcibly  upon  the  management  its  message  in 
regard  to  the  administrative  policy — factory,  sales 
and  financial.  When  anything  is  wrong  the  cost 
system  should,  as  it  were,  shout  that  fact  so  loud 
that  the  trouble  cannot  be  overlooked. 

Finally,  the  system  must  not  take  up  the  time  of  the 
busy  executive  except  when  it  is  essential  to  the 
success  of  the  business  that  he  give  his  attention  to 
costs.  The  rule  implied  in  this  statement  involves 
what  is  known  as  the  " exception  principle."  If  it  is 
practised,  the  result  is  an  arrangement  of  the  costs 
in  such  fashion  that  only  a  few  figures  come  regularly 
before  the  management.  The  few  that  are  selected, 
however,  exactly  reflect  the  efficiency  of  operation. 
The  slightest  fluctuation  calls  for  an  investigation — 
and  when  an  investigation  is  necessary,  reliable  in- 
formation must  be  available  in  the  fullest  detail. 

To  determine  the  effectiveness  of  a  cost  system, 
then,  one  should  measure  it  according  to  the  follow- 
ing standards: 

1.  Is  it  economical  as  regards  labor  and  material? 

2.  Is  it  simple  enough  to  be  understood  by  all  those  who 
are  to  make  use  of  it? 

3.  Does  it  truly  reflect  operating  conditions  ? 

4.  Does  it  accentuate  the  matters  of  importance  in  the  or- 
der of  their  importance? 

5.  Does  it  bring  the  facts  to  the  executive  promptly  enough 
so  that  faults  of  operation  may  be  avoided? 


36  EXECUTIVE  STATISTICAL  CONTROL 

6.  Are  the  facts  brought  to  the  executive  with  due  regard 
for  the  value  of  his  time? 

7.  Is  sufficient  insistence  placed  upon  the  facts  to  force 
the  executive  to  the  correct  decision  when  decision  is 
necessary  ? 

If  you  can  mark  a  cost  system  100  per  cent  efficient 
according  to  these  standards  there  can  be  no  doubt 
whether  the  system  is  earning  its  right  to  existence  as 
a  factor  in  production  by  its  active  assistance  in  the 
creation  of  dividends  for  the  stockholders  of  the 
corporation. 


CHAPTER  IV 

THE  COST  SYSTEM,  THE  SOURCE  OF 
RELIABLE  STATISTICS 

The  Basis  of  Scientific  Management. — In  the  three 
preceding  chapters  I  have  endeavored  to  present  a 
bird's-eye  view,  as  it  were,  of  industrial  conditions 
in  this  country  to-day,  and  to  make  certain  phases  of 
the  present  situation  clearer  by  tracing  the  develop- 
ment of  our  great  corporations  from  their  compara- 
tively small  beginnings.  I  have  attempted  to  show, 
at  the  same  time,  how  the  difficulties  of  administra- 
tion have  increased  for  the  executive  in  almost 
geometrical  progression  as  the  size  of  the  organiza- 
tion has  increased  and  as  industrial  processes  have 
become  more  complex.  Having  shown,  then,  in  a 
more  or  less  general  way  the  need  for  definite  and 
effective  methods  of  management  which  changed 
conditions  have  created,  I  shall  now  proceed  to  a  de- 
scription of  specific  methods  that  the  progressive 
executive  employs  in  order  to  meet  these  altered 
conditions  successfully. 

In  order,  however,  that  these  methods  may  be  the 
more  clearly  understood,  let  us  consider  briefly  the 
scientific  method — the  source  of  what  has  come  to  be 
known  as  scientific  management — and  in  regard  to  the 
movement  itself  let  us  note  the  relation  of  statistical 
control  to  the  other  elements  of  management. 
37 


3§  EXECUTIVE  STATISTICAL  CONTROL 

Perhaps  as  clear  and  concise  an  explanation  of  the 
scientific  method  as  can  be  found  is  the  following 
statement,  made  by  Edward  D.  Jones,  Professor  of 
Commerce  and  Industry  at  the  University  of  Michi- 
gan: 

The  pure  method  of  science  is  the  original  source  of  inspira- 
tion of  scientific  management.  Very  briefly  and  inadequately 
expressed,  it  is  somewhat  as  follows : 

1.  The  first  step  is  to  analyze  a  subject  into  parts,  and  to 
deal  with  the  subject  a  part  at  a  time. 

2.  The  second  step  is  to  proceed  with  the  collection  of 
data  in  this  analytical  form,  until  it  is  certain  that  the 
record  fully  records  the  law  of  the  subject,  whatever 
that  law  may  be;  and  further,  until  accidental  errors 
and  other  variations  due  to  chance  are  reduced  to  negli- 
gible or  definitely  calculable  proportions. 

3.  Third,  the  data  are  to  be  so  arranged  that  they  will  be 
brought  to  bear  as  fully  and  clearly  as  possible  upon  the 
object  of  the  study. 

4.  Fourth,  an  inference  is  made,  or  a  new  relationship  dis- 
covered. 

5.  The  fifth  and  last  step  is  to  give  to  the  new  inference 
a  thorough  testing  by  comparing  it  with  known  facts, 
to  ascertain  whether  it  is  truth  or  error.     If  the  new 
inference  stands  the  test,  it  is  no  longer  considered  a 
hypothesis,  but  a  truth. 

The  scientific  method,  then,  is  the  principle  which 
underlies  scientific  management.  Various  engineers, 
of  course,  have  different  methods  of  applying  the 
principle  and  have  set  forth  their  methods,  each  in 
the  form  which  he  believes  is  best  calculated 
to  explain  his  own  application  of  the  principle. 
These  codes  are  necessarily  somewhat  vague  because 
each  particular  business,  even  each  particular  depart- 
ment and  operation  must  be  studied  separately  and 


THE  COST  SYSTEM  39 

that  remedy  must  be  applied  which  will  insure  the 
maximum  operating  efficiency  of  that  operation,  de- 
partment and  business,  at  all  times.  In  the  accom- 
plishment of  this  object,  there  is  brought  to  bear  on 
the  problem  all  the  knowledge  of  the  workman,  the 
foreman,  the  superintendent,  the  manager  and  the 
engineer.  The  greater  the  knowledge  of  each,  the 
more  nearly  perfect  the  final  result.  The  engineer  is 
not  a  critic  but  an  epert  in  the  art  of  organizing  in- 
dustrial forces  for  victory  by  applying  the  principle 
and  its  elaborations. 

Elements  of  Scientific  Management.— There  is 
always  considerable  danger  in  attempting  to  reduce 
knowledge  to  hard  and  fast  rules,  since  once  the 
author  has  gone  on  record  by  committing  his  beliefs 
to  writing,  he  feels  bound  to  defend  those  beliefs, 
even  as  the  loyal  politician  feels  bound  to  defend  his 
party's  platform.  Nevertheless,  for  the  sake  of 
clarity,  it  has  seemed  advisable  in  the  present  case  to 
risk  future  biased  judgment — and  incidentally,  per- 
haps, the  criticism  of  the  arm-chair  type  of  indus- 
trial engineer,  who  is  ever  ready  for  a  disputation  as 
to  the  tenets  of  a  creed — and  to  attempt  a  brief 
tabulation  of  the  principal  elements  of  what  is  known 
as  scientific  management.  The  following  classifica- 
tion* will  serve  the  purpose: 

I — STANDARDIZATION  of  machinery,  equipment  and  con- 
ditions. 

II — ROUTING,  to  insure  the  product's  being  moved  in  the 
most  economical  manner  with  the  fewest,  shortest 
and  safest  movements  possible. 

*From  "Scientific  Industrial  Efficiency"  by  Dwight  T.  Farnham. 


40  EXECUTIVE  STATISTICAL  CONTROL 

III — CENTRALIZED  CONTROL,  including: 

1.  Setting  standards  of  accomplishment. 

2.  Scheduling — planning  to  attain  these  standards. 

3.  Dispatching — making  sure,  step  by  step,  that  the 

standards  are  attained. 

4.  Stores-and-material   control — to  integrate  with 

the  above,  and  so  insure  the  presence  of  the 
right  thing  at  the  right  time. 

5.  Release  of  executives  from  details  of  operation 

by  means  of  a  practice  of  the  exception  prin- 
ciple. 

IV — ANALYTICAL  COST  SYSTEM. 

1.  Graphic  comparison  of  all  important  operations. 

2.  The  operation  of  the  ratchet  principle,    ivhich 

prevents  the  loss  of  an  advantage  once  h  is 
gained. 

3.  Immediate  returns — on  all  -mportant  operations 

— which  make  possible  the  application  of  cor- 
rectives in  time  to  hold  losses  down  to  the 
minimum. 

V — WASTE  ELIMINATION.  Application  of  the  scientific 
method  in  the  case  of  losses  of  every  sort,  which  in- 
sures their  reduction  to  the  minimum. 

VI — STAFF  INVESTIGATION  of  all  problems  of  administra- 
tion, sales,  and  manufacture. 

1.  The  committee  system. 

2.  Harmony  meetings. 

3.  Development  of  specialists. 

4.  Expert  counsel. 

VII — DEFINITE  MANAGEMENT,  as  contrasted  with  casual 
methods  of  control  and  organization: 
1.     Exact  and  clearly  stated  limitations  of  line  au- 
thority— which  prevent  both  the  conflict  of  or- 
ders, waste  of  energy  through  the  efforts  of 
'  any  executive  to  encroach  upon  the  preserves 
of  another  executive,  and  the  various  other  in- 
efficiencies of  the  feudal  type  of  organization. 


THE  COST  SYSTEM  41 

2.  Functional  foremanship,  which  combines  staff 
specialization  with  line  executive  powers  in 
the  same  individual  or  in  different  individuals, 
with  such  concert  of  action  that  the  effect  is 
equally  effective  in  both  staff  and  line  activi- 
ties. 

VIII — INTENSIVE  LABOR  DEVELOPMENT. 

1.  Labor-turnover  reduction. 

2.  Organized  employment. 

3.  Safety  first. 

4.  Health  insurance,  hospital  arrangements,  etc. 

5.  Welfare  work. 

6.  Profit-sharing. 

IX — ANALYTICAL  TIME-STUDY.  The  scientific  determina- 
tion of  exactly  how  much  work  should  be  turned  out 
by  each  employee. 

X — THE  BONUS  REWARD,  which  involves  the  payment  of 
each  worker — laborer,  foreman,  superintendent, 
salesman  and  manager — in  exact  proportion  to  what 
he  accomplishes  for  the  company. 

XI — WRITTEN  INSTRUCTIONS  AND  STANDARDS.  The  pres- 
ervation in  permanent  form  of  all  facts  upon  which 
decisions  are  based,  as  well  as  the  filing  of  all  deci- 
sions, either  staff  or  line,  reached  by  the  executives 
and  the  experts  of  the  company. 

XII — MODERN  BUSINESS  IDEALS,  which  imply  that  supreme 
common  sense  which  has  regard  for  the  highest  busi- 
ness ethics,  believes  in  the  fair  deal  toward  labor, 
competitors  and  customers,  possesses  a  willingness 
to  exchange  ideas  with  others  and  an  open  minded- 
ness  toward  new  ideas  and  toward  technical  and  ex- 
pert counsel,  which  such  ideals  imply  also  a  willing- 
ness to  participate  in  personally,  and  to  support, 
progressive  movements  of  real  merit,  and  to  prac- 
tise as  far  as  possible  what  has  been  characterized 
as  the  "golden  rule  in  business." 


42  EXECUTIVE  STATISTICAL  CONTROL 

This  tabulation  outlines,  though  inadequately,  the 
principles  subscribed  to  by  the  modern  executive  who 
desires  to  replace  with  "definite  management"  the 
casual  methods  of  control  and  organization  that 
served  the  needs  of  the  old-time  manufacturer  when 
he  set  up  a  stave  mill  or  a  blanket  factory  on  the 
corner  of  the  farm  nearest  the  village.  Most  of  the 
particular  divisions  of  management  under  the 
scientific  method  which  I  shall  endeavor  to  make 
clear  in  the  following  pages,  will  be  found  under 
Section  IV  of  the  classification  just  given.  I  shall 
touch  upon  certain  matters  that  appear  under  Sec- 
tions III,  V,  VI  and  VII,  and  I  shall  refer,  also,  from 
time  to  time  to  other  phases  of  the  subject,  since  this 
discussion  concerns  management,  and  modern  man- 
agement reaches  all  sections'  of  a  business. 

Danger  of  Adopting  System  Blindly. — It  is  no 
simple  task  to  select  a  cost  system  which,  at  a  mini- 
mum expense  for  compilation,  will  furnish  the  execu- 
tive with  the  data  that  will  make  it  possible  for  him 
to  conduct  the  business  in  the  most  effective  way.  A 
man  who  comes  into  executive  control  in  one  of  our 
large  industrial  plants  generally  is  born  to  a  cost 
system,  or  acquires  one,  or,  worst  of  all,  has  one 
thrust  upon  him  because,  perhaps,  some  influential 
director  has  the  fixed  idea  that  statistical  work  rep- 
resents "useless  overhead." 

The  inherited  cost  system  can  usually  be  re- 
modeled, in  time,  if  sufficient  patience  be  exercised, 
provided  those  in  control  are  open-minded  enough  to 
recognize  the  deficiencies  of  such  a  system.  I  have 
known  cases,  however,  in  which  ultra-conservative 


THE  COST  SYSTEM  43 

directors  insisted  on  retaining  the  old  system  almost 
indefinitely  in  addition  to  the  new,  simply  because 
they  suspected  the  new  manager  of  trying  to  make  a 
showing  by  manipulating  the  books  instead  of  con- 
centrating on  the  factory,  or  because  they  were  sure 
they  understood  the  old  system,  but  found  the  new 
one  confusing.  Fortunately  this  sort  of  opposition 
usually  wears  away  gradually,  especially  if  the  execu- 
tive realizes — as  most  good  managers  do — that  the 
larger  part  of  his  work  with  his  directors  must  be 
of  an  educational  nature.  The  man  who  can  get  his 
board  out  of  the  frame  of  mind  in  which  they  regard 
the  business  merely  as  a  means  of  producing  divi- 
dends and  can  fire  them  with  an  enthusiasm  for  the 
romance  that  lies  in  industry,  the  struggle  for  ex- 
istence, the  pursuit  of  the  ideal  product,  the  lust  of 
the  battle  with  competitors  and,  finally,  the  pro- 
vision of  steady,  remunerative  employment  for  hun- 
dreds of  loyal  co-laborers — such  a  man  need  not 
doubt  that  he  will  eventually  carry  his  point  when  he 
asks  for  an  appropriation  of  funds  with  which  to  in- 
stall advanced  methods  of  any  sort. 

Such  an  executive  belongs  in  the  second  class  de- 
scribed above,  which  consists  of  those  who  acquire 
cost  systems.  I  do  not  propose  to  discuss  in  this 
connection  the  merits  of  the  various  kinds  of  cost 
systems  and  accounting  methods,  or  to  treat  such 
questions  as  depreciation,  sinking  funds  to  distribute 
repairs,  extraordinary  repairs  and  the  charging  of 
interest  on  the  investment.  These  problems  are  ably 
covered  in  another  part  of  this  Course.  I  do  intend, 
however,  to  give  an  outline  of  a  cost  system  which 


44  EXECUTIVE  STATISTICAL  CONTROL 

has  been  successfully  used,  for  the  sake  of  clarity 
and  in  order  that  it  may  serve  as  a  framework  for 
the  statements  which  will  follow  in  regard  to  satisti- 
cal  control  for  the  executive. 

Dispatch  Board  Gets  Results. — In  the  first  place,  a 
cost  system  should  be  flexible — like  the  "great 
hydraulic  rams,  which  at  the  will  of  the  operator  will 
crack  a  nut  wthout  injuring  the  kernel,  or  which  will 
reduce  to  powder  a  massive  ingot  of  steel!"  The 
authors  of  our  boyhood  used  to  describe  them  in  all 
the  enthusiasm  of  their  innocence,  in  the  volumes 
which  haunted  the  shelves  back  of  the  organ  in  the 
village  Sunday  school.  In  other  words,  a  cost  sys- 
tem should  furnish  the  executive  the  vital  informa- 
tion all  the  time;  it  should  furnish  him,  when  neces- 
sary, all  the  information  to  the  last  detail. 

For  securing  the  desired  end  those  systems  which 
use  a  triplicate  time  or  service  card*  are  perhaps  the 
most  effective  and,  at  the  same  time,  the  simplest. 
In  accordance  with  such  systems,  the  worker,  when 
he  begins  a  job,  is  given  a  ticket  that  fully  describes 
from  a  cost  standpoint  the  work  he  is  to  do.  When 
the  ticket,  upon  which  is  marked  the  time  when  the 
work  is  started,  is  made  out  by  the  clerk,  two  sheets 
of  carbon  are  used,  so  that  all  the  information  on  the 
first  ticket  appears  also  on  the  second  and  third 
sheets.  While  the  job  is  in  progress,  the  workman 
always  holds  the  first  ticket,  the  second  and  third 
sheets  (and  carbons)  are  placed  on  a  rack,  Figure  1, 
which  is  known  by  various  titles.  This  rack  I  shall 
call  the  dispatch  board  (borrowing  a  term  from  the 

*  See  Figure  4  in  Chapter  V. 


46  EXECUTIVE  STATISTICAL  CONTROL 

Eailroad).  Any  one  who  understands  the  system  can 
check  up  the  honesty  of  all  concerned  at  any  time, 
simply  by  comparing  the  ticket  held  by  any  workman 
with  the  duplicate  on  the  Dispatch  Board.  More- 
over, the  department  foreman  can  tell  by  a  glance  at 
the  dispatch  board  just  how  many  men  are  working 
and  exactly  what  they  are  doing.  There  are  also  cer- 
tain graphic  features  of  this  system  which  will  be  de- 
scribed elsewhere. 

When  the  workman  has  completed  his  job  he  re- 
turns his  ticket  to  the  clerk,  who  fastens  the  second 
and  third  tickets  to  it  and  marks  in  the  time  when  the 
work  is  completed.  At  the  same  time  the  workman  is 
given  a  new  ticket,  which  has  been  prepared  before- 
hand under  the  direction  of  those  who  plan  his  work 
for  him,  and  who  comprise  what  is  usually  known  as 
the  planning  department. 

The  three  tickets  are  now  separated.  Each  one  of 
them  contains  complete  information — the  amount  of 
time  the  work  has  consumed,  the  rate  of  pay,  the 
name  of  the  employee  and  of  the  department  for 
which  he  did  the  job,  a  brief  description  of  the 
machine  and  of  the  material  he  used,  and  any  other 
essential  data.  The  first  ticket,  which  the  workman 
held,  becomes  the  timekeeper's  source  of  information. 
From  it  the  latter  enters  upon  the  payroll  the  hours 
worked  and  ultimately  the  amount  of  money  due. 
He  then  files  the  ticket  according  to  the  man's  num- 
ber. If  an  employee  ever  questions  the  justice  of  his 
remuneration,  the  timekeeper  is  in  a  position  to  show 
him  the  actual  ticket  he  held  while  he  was  doing  the 
work. 


THE  COST  SYSTEM  47 

The  second  ticket,  which  also  contains  complete  in- 
formation, goes  to  the  cost  department,  where  it  is 
filed  under  the  item  under  which  the  money,  the  ex- 
penditure of  which  it  represents,  will  eventually  ap- 
pear on  the  monthly  cost  sheet. 

The  third  ticket  also  goes  to  the  cost  department. 
It  is  filed  in  a  special  manner,  which  varies  with  the 
kind  of  business  and  with  the  particular  investiga- 
tion .that  is  being  made.  It  may  be  used  in  the  de- 
termination of  job  costs  when  the  monthly  costs  are 
assembled  according  to  departments,  or  vice  versa — 
or  for  any  special  purpose  designated  by  the  manage- 
ment. 

Assembling  the  Costs. — The  principal  advantage  of 
the  whole  system  is  that  the  original  record  becomes 
the  final  record.  Furthermore  unit  costs  are  deter- 
mined by  sorting  the  cards — "by  playing  solitaire 
with  them,"  as  one  clerk  expressed  it.  In  other 
words,  it  is  not  necessary  to  copy  a  lot  of  figures  in 
order  to  assemble  totals,  and  thus  run  the  risk  of 
making  a  number  of  mistakes.  The  system  makes  all 
work  of  recording  easier,  since  it  renders  it  almost 
mechanical.  Once  the  tickets  are  stacked  together, 
the  cost  of  the  work  can  be  found  by  taking  off  on  an 
adding  machine  the  total  of  the  various  job  tickets. 

Each  day  the  second  tickets,  original  and  duplicate, 
are  sorted  according  to  product  and  department  if  the 
particular  business  falls  in  the  continuous-productive 
class,  or  in  any  other  manner  the  business  may  re- 
quire, and  then  their  totals  are  taken  down  on  what 
is  usually  called  the  distribution  sheet.  This  sheet  is 
prepared  in  various  ways.  Usually  there  is  at  the  left 


THE  COST  SYSTEM  49 

a  list  of  departments  under  which  are  shown  the 
products  of  each  department,  and  opposite,  under  the 
date,  spaces  are  left  in  which  entries  can  be  made  of 
the  amount  of  money  spent  on  production  in  each 
department.  As  the  amount  spent  on  each  product  is 
ascertained  from  the  tickets,  it  is  entered  under  the 
date.  The  total  amount  spent  for  labor  on  any 
one  date  should  equal  the  total  of  the  payroll  amount 
for  that  date.  This  method  makes  it  possible  to 
check  the  labor  cost  daily  by  the  payroll,  and  vice 
versa — a  system  which  is  likely  to  save  the  burning 
of  much  midnight  oil  at  the  end  of  the  month,  and 
which  usually  means  the  completion  of  the  costs  and 
the  payrolls  on  the  date  set. 

The  costs  are  assembled  from  the  daily-distribu- 
tion sheet,  Figure  2.  The  usual  monthly  cost  sheet, 
Figure  3,  contains,  at  the  left,  the  same  list  of  depart- 
ments as  the  distribution  sheet.  The  names  of  the 
products  are,  however,  carried  as  column  headings 
to  the  spaces  at  the  right  of  the  departments  and 
under  each  such  column  heading  appears  the  follow- 
ing information: 

(a)  The  total  expenditure  for  the  month— known  as  the 
monthly  expense. 

(b)  The  total  expenditure  for  the  year,  including  the 
month  in  question — known  as  the  cumulative  expense. 

(c)  The  cost  per  unit  for  the  month  (part  "a,"  divided 
by  the  units  produced  in  the  department  that  month). 

(d)  The  cost  per  unit  for  the  year  (part  "b,"  divided  by 
the   units  produced   in  the   department  that  year) 
known  as  the  cumulative  average. 

This  system  enables  the  executive  to  judge  whether 


n 


THE  COST  SYSTEM  51 

the  cost  for  the  month  is  above  or  below  the  average, 
and  to  tell  just  how  much  money  was  expended  in 
each  department  for  each  product.  At  the  same  time 
it  furnishes  statistical  information  in  sufficient  detail 
to  allow  of  the  prompt  and  easy  preparation  of  the 
various  charts  and  graphs  which  are  described  later. 
The  material  costs  are  similarly  assembled.  Each 
article  drawn  from  the  stores  is  recorded  on  a 
requisition,  which  is  later  sorted  to  department  and 
product,  and  through  the  medium  of  a  material  dis- 
tribution sheet  eventually  appears  on  the  monthly 
cost  sheet,  having  followed  much  the  same  course  as 
the  labor  costs.  The  principle  to  be  kept  firmly  in 
mind  in  devising  a  stores  system  is  the  one  so  fre- 
quently enunciated  by  that  erstwhile  occupant  of  the 
pages  of  our  comic  weeklies — the  Chinese  laundry- 
man.  It  must  always  and  forever  be  a  case  of  "no 
checkee,  no  washee,"  even  though  the  heavens  fall. 
If  any  one  is  allowed  to  remove  material  or  supplies 
from  the  store  house  without  turning  in  his 
"checkee"  in  the  form  of  a  requisition,  the  whole 
system  goes  to  pieces.  I  have  usually  found  that  the 
best  attitude  of  mind  to  assume  in  regard  to  the 
stores  system  is  that  of  a  banker  entering  a  new 
territory.  He  may  establish  a  branch  bank  here  and 
there,  but  there  must  always  be  a  branch  bank  man- 
ager— some  one  responsible  for  the  withdrawal  of 
money  from  any  bank — and  the  branch  manager  must 
be  made  to  understand  that  he  shall  pay  out  not  one 
cent  over  the  counter  without  a  check,  signed  by  a 
responsible  party.  To  draw  the  parallel,  the  manu- 
facturer may  have  a  lumber  yard,  or  a  casting  en- 


52  EXECUTIVE  STATISTICAL  CONTROL 

closure,  to  save  rehandling  of  materials,  but  he  must 
always  have  some  one  in  charge  whom  he  holds  re- 
sponsible for  the  withdrawal  of  any  material;  and  he 
must  impress  upon  the  manager  or  foreman  the  im- 
portance of  his  not  allowing  any  one  to  withdraw 
material  without  first  submitting  a  requisition  signed 
by  a  responsible  person. 

Costs  and  Operative  Efficiency. — There  is  another 
important  point  in  connection  with  cost-keeping  which 
is  often  overlooked — namely,  that  the  kind  of  costs 
which  lead  to  the  most  efficient  factory  operation  are 
often  quite  different  from  the  kind  upon  which  it  is 
safe  to  base  selling  prices.  When  the  executive  is 
figuring  a  sales  price  that  will  give  him  a  profit,  he 
must  divide  the  total  expense  representing  all  the 
money  spent  for  a  considerable  period  by  the  total 
number  of  completed  saleable  units  produced,  in  order 
to  determine  the  unit  cost.  This  procedure  provides 
for  a  consideration  of  the  wastage  in  each  depart- 
ment, which  is  an  important  matter  since  the  firm 
sells  only  the  complete  and  perfect  product. 

The  method  may  be  illustrated  by  the  following 
example — the  case  of  a  brick  factory.  This  procedure 
applies  equally  well  to  any  similar  line  of  manufac- 
ture which  incurs  manufacturing  losses  in  connection 
with  material  in  the  semi-processed  as  well  as  in  the 
three-quarter  finished  state. 

The  difference  in  cost  between  the  two  methods 
amounts  to  $2  per  piece.  For  the  sake  of  emphasis 
losses  are  exaggerated  in  the  example,  but  even  if 
losses  are  below  the  average,  sales  made  based  on 
costs  and  compiled  under  Method  A  may  result  in 


THE  COST  SYSTEM 


53 


METHOD  A  (DEPARTMENTAL) 

Operation 

Pieces 
Pro- 
cessed 

Expense 

Cost 
Piece 

1.  Forming  and  Drying 

100 
50 

$100.00 
$100.00 

$2.00 
4.00 

2.  Loss  in  Drying  
3.  Net  Departmental  Output.  .  .  . 

4.  Burning  
5.  Loss  in  Burning 

50 

50 
25 

6.  Net  Departmental  Output.  .  .  . 

25 

7.  Total   Cost   per  ^  Saleable   Piece 
(based  on  Individual  Departmental  Costs)  ...   $6  .  00 

METHOD  B  (SALES) 

Operation 

Pieces 
Pro- 
cessed 

Expense 

Cost 
P?ece 

1.  Forming  and  Drying  
2.  Assume  loss  (in  drying)  
3.  Burning.  
4.  Assume  loss  (in  burning)  

100 
50 
50 
25 

$100.00 
100.00 

5.  Total  Expense  $2CO.  00 

6.  Total  Number  Saleable  Pieces.       25 
7.  Total  Cost  per  Saleable  Piece  ....  $8.00 

actual  profits  much  lower  than  those  shown  by  the 
monthly  balance  sheets.  Not  long  ago  I  had  occa- 
sion to  investigate  this  very  problem  for  a  large 
concern,  and  I  found  that  even  though  an  allowance 
was  made  for  process  losses  the  company's  state- 


54  EXECUTIVE  STATISTICAL  CONTROL 

ments  for  the  year  showed  profits  over  $12,000  in 
excess  of  those  actually  earned.  The  result  of  such 
undiscovered  losses  when  they  continue  for  a  period 
of  years  can  readily  be  imagined. 

To  repeat,  then,  sales  prices  should  be  fixed  by  add- 
ing a  profit  to  a  cost  which  is  the  quotient  of  the 
division  of  the  total  amount  expended  during  a  period 
of  months  by  the  saleable  units  produced  for  that 
period.  Thus : 

Cumulative  Average  Total  Manufacturing  Expense  Safe  Cost  for 
Cumulative  Average  Total  Saleable  Units  Produced  Sales  base 

It  goes  without  saying  that  in  the  case  of  irregular 
output,  when  a  much  greater  amount  of  product  was 
in  process  of  manufacture  at  the  beginning  of  the 
period  than  at  the  end,  allowance  should,  of  course,  be 
made. 

Method  B  is  of  no  use  to  the  executive  for  the 
purpose  of  statistical  control,  however,  since  the  final 
cost  figure  is  the  only  one  which  appears.  If  the 
efficiency  of  the  factory  is  to  be  increased,  much 
greater  detail  is  required.  Under  such  circumstances 
Method  A,  which  furnishes  departmental  costs,  must 
be  adopted.  When  this  method  is  used  the  total  cost 
is  pracically  of  no  use  as  a  sales  base.  The  costs  in 
each  department  are,  however,  accurate.  It  is  im- 
portant that  the  executive,  in  the  case  of  the  brick 
factory,  keep  continually  informed  concerning  the  cost 
of  forming  and  drying  each  unit,  in  order  we  will  say, 
that  he  may  praise  or  chide  the  workers  and  the  su- 
perintendent according  to  their  respective  perform- 
ances. When  scientific  management  is  employed,  the 
bonuses,  of  course,  reward  each  worker  and  each  su- 


THE  COST  SYSTEM  55 

perintendent  exactly  in  proportion  to  his  accomplish- 
ment as  to  quantity,  quality  and  cost  of  production. 

It  is,  however,  no  concern  of  the  forming  and  dry- 
ing crew  of  the  brick  factory  if  the  men  who  truck 
to  the  kilns  later  on  smash  or  destroy  every  brick. 
Their  job  is  to  form  and  dry  the  product,  and  their 
reward — be  it  praise  or  bonus — must  be  based  upon 
their  own  performance  of  their  own  duties,  not  on 
what  happens  in  connection  with  jobs  which  precede 
or  follow  their  own,  and  over  which  they  have  no 
control.  The  same  thing  holds  true  in  the  case  of  the 
burning  crew.  Their  job  is  so  to  perform  their  duties 
that  the  maximum  amount  of  the  product  contained 
in  the  kilns  shall  come  forth  perfect,  at  the  lowest 
cost.  The  executive  must  know  exactly  how  efficiently 
the  burners  are  performing  their  duties  if  he  is  to  re- 
ward with  any  show  of  justice. 

Briefly,  then,  if  costs  are  to  be  of  value  from  the 
standpoint  of  the  executive,  they  must  be  figured  as 
if  each  machine  and  each  department  were  a  little 
factory  all  by  itself,  and  even  if  each  be  operated  by 
a  single  man,  the  costs  must  show  what  the  expense 
of  production  is  and  what  quality  of  product  is  turned 
out. 

Efficiency,  Production  Costs,  and  Profits. — The  effi- 
ciency with  which  the  factory  is  operated  is  the  prin- 
cipal factor  in  production  costs  and  in  profits  over 
which  the  executive  has  the  greatest  control.  The 
best  salesman  in  the  world  can  overcome  only  a  mod- 
erate price  differential  by  exerting  the  force  of  his 
personality.  A  brief  analysis  of  the  cost  of  produc- 
tion in  an  imaginary  case  will  make  this  statement 


56  EXECUTIVE  STATISTICAL  CONTROL 

clear.  Let  us  take  for  example  a  product  that  has 
the  commonest  five  variables,  all  of  which  influence 
cost:  (1)  shape,  (2)  material  mixture,  (3)  process, 
(4)  quantity,  and  (5)  efficiency  of  manufacture. 

The  first  of  these,  shape,  is  largely  determined  by 
the  customer.  He  knows  what  he  wants — whether  in 
wood,  steel,  or  composition — and  that  is  what  he  or- 
ders. The  manufacturer  strives  to  please  him,  re- 
gardless of  the  fact  that  it  is  easier  and  cheaper  to 
manufacture  articles  in  some  shapes  than  in  others. 
The  executive  can  only  bow  to  his  customer's  will 
and  follow  the  blueprint  furnished. 

The  second  variable,  mix,  is  also  controlled  by  the 
customer  consciously,  as  when  a  certain  wood  is  or- 
dered for  a  door,  or  when  a  certain  proportion  of 
various  ingredients  is  definitely  named  in  an  order 
for  a  casting;  or  unconsciously,  as  when  the  par- 
ticular use  to  which  a  tool  or  a  refractory  is  to  be  put, 
is  specified.  In  this  case  the  manufacturer,  out  of  re- 
gard for  his  reputation  and  the  future  prosperity  of 
his  firm,  must  furnish  a  mix  that  will  stand  up  under 
the  treatment  it  is  to  receive — regardless  of  the  fact 
that  he  could  use  some  other  mix  more  cheaply.  The 
executive  has  little  control  over  this  factor  of  cost. 
If  he  wishes  to  make  a  success  of  his  business  he  must 
be  guided  by  the  reasonable  demands  of  customers. 

The  third  variable,  process,  is  determined  partly 
by  the  customer,  and  partly  by  the  executive  in  his 
desire  to  uphold  the  reputation  of  his  house,  as  in  the 
case  of  mix. 

The  fourth  variable,  quantity,  while  nominally  con- 
trolled by  the  sales  department — since  their  activities 


THE  COST  SYSTEM  57 

are  the  most  closely  related  to  the  disposal  of  the 
product — in  reality  depends  fundamentally  upon  1,  2 
and  3  (shape,  mix,  and  process)  in  so  far  as  they 
represent  satisfied  customers  and  quality  of  product, 
and  upon  the  cost  of  production,  which  determines 
the  selling  price. 

The  fifth  variable,  efficiency  of  manufacture,  is  in 
the  hands  of  the  executive.  This,  if  he  is  worthy  of 
the  name  of  executive  he  can  control.  As  a  matter 
of  fact,  the  success  of  the  business  is  dependent  upon 
his  ability  to  control  efficiency.  For  that  reason  the 
first,  the  last  and  the  eternal  duty  of  the  statistical  de- 
partment is  to  keep  the  executive  continually  in- 
formed concerning  the  efficiency  of  operation.  And 
the  ultimate  success  of  the  executive  depends  upon 
his  wisdom  in  selecting  a  cost  system  and  upon  the 
use  he  makes  of  the  information  which  it  furnishes 
him. 


CHAPTER  V 
THE  COST  SYSTEM— CONTINUED 

Job-Cost  and  Continuous-Production  Systems.— In 
order  to  make  clearer  the  statements  in  the  preceding 
chapter  I  have  included  in  this  chapter  certain  special 
illustrations  which  concern  what  the  federal  Trade 
Commission  has  termed  the  continuous-production 
system  in  contrast  to  the  job-cost  system.  It  is  inter- 
esting to  note  in  this  connection  the  following  state- 
ment of  the  Commission: 

There  are,  generally  speaking,  but  two  distinct  methods 
of  manufacture.  Each  requires  a  cost  system  a  little  differ- 
ent in  detail,  but  identical  in  fundamental  principles.  The 
first  of  these  is  used  in  a  business  where  every  order  is  a 
separate  article  of  manufacture,  very  often  made  to  order, 
and  where  the  selling  price  is  fixed  before  work  is  started; 
and  the  second  is  used  in  a  business  where  the  output  con- 
sists of  one  or  more  articles  which  are  being  continuously  pro- 
duced. For  convenience  we  will  designate  the  cost  systems 
applicable  to  each  as  the  "Job  Cost  System"  and  the  "Con- 
tinuous Production  System. ' ' 

Mnemonic  System's  Special  Advantages.— No  discus- 
sion of  cost  systems  would  be  complete  which  did  not 
emphasize  the  importance  of  mnemonic  symbols. 
Their  value  cannot  be  overestimated.  The  use  of 
these  symbols  carries  with  it  the  following  advan- 
tages: 

1.  It  decreases  the  liability  of  error  in  the  records, 
as  well  as  the  possibility  of  any  dishonesty  on  the 
58 


THE  COST  SYSTEM 


59 


IMPERIAL  MILLING  COMPANY 

LABOR  SERVICE  CARD        roftM  »2OA 

J~~~~,     &—-, 

13/3 

J                    S-/3-/7 

\                     \        & 

Z  -*</*/£ 

OPER     NO.              ACCOUNT   NO. 

A                t-D-l 

OCLAT    AND 

CAUSE 

STO.  TIME 

OPERATION 

T.HC  STARTED  

0-0 

/<? 

c^ 

TIME  ELAPSED 

s-  -o 

BURDEN 

TOTAL 

PIG.  4.      SERVICE  CARD 

This  form  is  in  triplicate.    For  convenience  the  upper  is  tinted  blue, 
the  second  pink  and  the  third,  white. 

part  of  a  workman.  The  symbol  appears  on  the 
workman's  job  ticket — which  is  always  in  his  posses- 
sion— and  accompanies  the  dollar,  as  it  were,  which  is 
paid  out  to  him  in  the  form  of  wages  for  that  par- 
ticular job,  in  all  its  journey  through  the  books  and 
records  of  the  compan)7.  Thus,  when  James  Brown, 
No.  2313,  begins  work  shoveling  (Operation  No.  A) 
raw  material  (Product  Ch)  in  the  handling  depart- 
ment (Account  No.  1)  in  factory  No.  3  (Department 
No.  3),  thereby  performing  direct  labor  (Account  No. 
L-D),  the  Dispatch  Clerk  writes — as  shown  in  Figure 
4 — the  following  name  and  symbols  in  their  proper 
places  on  the  service  card: 

James  Brown,  2313,  A,  Ch,  3,  L-D-1. 

Later  on,  these  symbols  indicate  to  the  timekeeper 


60  EXECUTIVE  STATISTICAL  CONTROL 

where  to  enter  the  number  of  hours  (5)  that  James 
Brown  (No.  2313)  worked,  and  show  the  cost  clerk 
just  where  to  enter  the  amount  of  money  expended 
upon  that  work  on  the  daily  ditsribution-sheet,  which 
has  on  it  a  space  in  which  is  to  be  recorded  the  total 
amount  of  money  spent  during  the  day  on  "Ch"  in 
Department  3  for  L-D-L 

Still  later,  the  bookkeeper  enters,  under  Account 
L-D-1,  or  under  Control  Account  L-D,  James  Brown's 
"dollar,"  together  with  those  of  dozens  of  other 
workers.  Throughout  all  its  devious  wanderings, 
however,  that  very  dollar  can  always  be  traced  back 
to  James  Brown,  and  the  fact  can  be  established  that 
it  was  paid  him  for  shoveling  off  just  so  much  "Ch" 
on  the  morning  of  January  13,  1917. 

2.  The  use  of  mnemonic  symbols  also  materially 
decreases  the  amount  of  work  required  of  every  one 
who  has  anything  to  do  with  recording  James 
Brown's  activities.  This  fact  would  become  apparent 
immediately  to  any  person  who  should  compare  the 
length  of  time  it  takes  to  describe  exactly  the  work 
that  James  Brown  did  (described  immediately  above), 
with  the  time  it  takes  to  write  out  the  words  for 
which  the  symbols  shown  on  the  service  card  stand. 
Incidentally,  it  is  entirely  probable  that  some  of 
James  Brown's  time  is  saved  by  this  method — espe- 
cially, considering  that  when  the  more  cumbersome 
long  hand  method  is  used  he  may  stop  work  while 
the  Dispatch  Clerk  makes  out  his  ticket.  A  certain 
amount  of  time  is  also  saved  by  having  definite  head- 
ings which  are  agreed  upon  for  current  use.  If  the 
mnemonic  symbols  are  not  used,  each  clerk  is  likely 


THE  COST  SYSTEM  61 

to  describe  the  same  operation  a  little  differently  each 
time  he  performs  it.  Moreover,  each  clerk  who  re- 
cords operations  makes  his  own  personal  interpreta- 
tion of  a  different  expression  each  time — for  example, 
one  clerk  might  write  "unloading  coal  for  power," 
another  "unloading  boiler  coal,"  another  "shoveling 
coal  at  boiler  house,"  and  so  on.  All  mean  the  same 
thing,  and  could  be  expressed  much  more  quickly  and 
with  less  chance  of  misunderstanding  by  writing 
L-P-l-A. 

3.  The  greatest  advantage  of  mnemonic  symbols, 
perhaps,  is  that  they  are  conducive  to  extreme  flexi- 
bility in  the  compilation  of  costs.  When  they  are 
used  with  the  service  card  it  is  possible  to  assemble 
manufacturing  costs  under  the  three  main  headings 
of  labor,  material  and  charges.  In  other  words,  just 
three  principal  headings  are  sufficient  for  the  record- 
ing of  either  the  detailed  cost  of  the  smallest  opera- 
tion in  the  most  obscure  department,  or  the  total  cost 
of  all  operations.  The  executive  can  assemble  just  as 
much  detail  or  just  as  little  as  he  considers  .desirable. 
Information  concerning  the  cost  of  all  work  is  always 
at  his  command;  consequently,  expenditure  for  su- 
perfluous clerical  work  is  never  necessary.  Thus  com- 
plete statistics  for  control  can  be  obtained  at  the  least 
possible  expense. 

The  task  of  working  out  the  series  of  symbols  for 
any  individual  business  furnishes  an  opportunity  for 
the  exercise  of  considerable  ingenuity.  Besides  the 
question  of  completeness,  there  are  several  points  to  be 
considered  in  connection  with  any  mnemonic  system — 
for  example  the  relative  speed  with  which  different 


62  EXECUTIVE  STATISTICAL  CONTROL 

kinds  of  symbols  can  be  written,  and  the  ease  with 
which  they  can  be  remembered.  A  certain  group  of 
engineers  insist  very  rigidly  upon  the  use  of  letters 
and  combinations  of  letters — rather  than  figures — and 
advocate  their  use  throughout  the  business  as  a  sort 
of  shorthand.  Letter  symbols  are  generally  more 
easily  remembered  than  figures,  since  they  are  based 
upon  the  psychological  principle  of  the  association  of 
ideas.  For  instance,  often  a  symbol  consists  of  the 
first,  or  of  the  first  and  the  second  letter  of  the  word 
that  it  indicates. 

Figures,  however,  possess  certain  distinct  advan- 
tages for  mnemonic  purposes.  They  can  be  written 
from  forty  to  fifty  per  cent  faster  than  letters.  When 
they  are  used,  once  operations  are  listed,  the  insertion 
of  new  operations  is  simpler  and  quicker  than  when 
letters  are  employed.  A  designation  like  L-l-3-4  is 
neater  than  one  composed  of  letters.  Moreover,  it 
can  be  culled  from  among  a  list  of  hundreds  of  ac- 
counts rather  more  quickly  by  the  novice  than  a  sym- 
bol such  as  SYSE-EFUL-GKE. 

Combination  Mnemonic  and  Numerical  System. — 
It  will  be  noted  in  the  following  pages  that  I  have 
adopted  a  combination  of  the  two  systems  in  an  en- 
deavor to  secure  both  the  advantages  of  the  associa- 
tion of  ideas  which  the  letter  system  furnishes,  and 
the  speed  and  flexibility  that  are  characteristic  of 
the  number  system. 

The  service  card,  completely  filled  out,  is  shown 
in  Figure  4,  page  59.  Upon  this  card  the  following 
data  are  entered,  each  item  in  its  proper  place: 


THE  COST  SYSTEM  63 

(1)  The  Account  Number — (Ac.N.) — as  shown  by  the  list 
of  accounts. 

(2)  The  Department  Number — (Dp.N) — as  shown  by  the 
enclosed  list,  which  includes  three  factories  together 
with  their  subsidiary  departments. 

(3)  The  Sub-Department  Number— (S.Dp.N)— the  third 
figure  of  the  account  number  (i.e.,  Grinding  Dept.). 

(4)  The  Operation  Number—  (Op.N.)— ( i.e.,  Shoveling). 

(5)  The  Product  or  Material— (P.  or  M.). 

(6)  Certain  other  information,  which  the  card  itself  ren- 
ders evident. 

The  three  copies  of  the  card  are  made  out  with  car- 
bons and  the  cards  are  filed  as  follows: 


1.  To  man  number — for  the  payroll. 

2.  To  department  number — for  the  compilation  of  the  de- 
partmentalized costs. 

3.  Specially — as  directed  for  the  compilation  of  job  costs 
in  certain  departments;  for  the  determination  of  cost 
of  special  products  or  special  processes ;  and  for  all 
other  cost  determinations  of  a  special  nature. 

I  have  prepared  the  following  operating  accounts, 
to  illustrate  the  classification  of  all  expenses  incurred 
in  the  operation  of  a  plant,  under  headings  which  will 
give  the  most  desirable  information,  and  which  will 
lend  themselves  most  readily  to  standardization. 

All  expenses  are  classified  under  the  following  pri- 
mary captions: 

1.  Labor.     (L.) 

2.  Material.     (M.) 


64  EXECUTIVE  STATISTICAL  CONTROL 

3.  Charges.     (C.) 

4.  Administration.     (A.) 

5.  Sales.     (S.) 

6.  General.     (G.) 

The  first  three  of  these  are  in  turn  subdivided  into 
secondary  captions: 

1.  Direct  Expense.     (-D.) 

2.  Power  Expense.     (-P.) 

3.  Maintenance  Expense.     (-M.) 

4.  Supervision  Expense.     (-S.) 

5.  Rent  Expense.     (-R.) 

The  secondary  captions  furnish  a  means  of  com- 
paring each  month  or  at  any  other  desired  interval, 
the  five  items  that  most  clearly  show  the  tendencies 
toward  efficiency  or  inefficiency  in  operation. 

Finally  provision  is  made  for  the  detailed  classi- 
fication of  all  labor,  material,  and  fixed  charge  ex- 
penses, in  a  clearly  defined  logical  set  of  accounts  de- 
signed to  show  the  following  items:  The  wages  of 
each  man  for  every  tenth  of  an  hour  of  the  day;  the 
cost  of  all  material  used,  and  the  purposes  for  which 
it  is  used;  and  the  distribution  of  all  fixed  charges. 

From  these  accounts  a  manufacturing  statement  is 
to  be  made  up  each  month  which  shall  not  only  show 
plainly  where  every  dollar  expended  has  gone,  but 
which  shall  indicate  also  just  how  effectively  every 
dollar  has  been  used.  The  value  of  such  informa- 
tion cannot  be  overestimated,  since  it  forms  the  basis 
of  those  methods  of  management  which  secure  the 
greatest  ultimate  return  upon  the  capital  invested  in 
the  business. 


THE  COST  SYSTEM  65 

CLASSIFICATION  OF  ACCOUNTS 

DIAGRAM  INDEX 

1.  Labor— (L). 

Direct—  (D). 
Power— (P). 
Maintenance —  ( M ) . 
Supervision — (S). 
Rent— (R). 

2.  Material— (M). 

Direct— (D). 
Power— (P). 
Maintenance —  ( M ) . 
Supervision — (S). 
Rent— (R). 

3.  Charges— (C). 

Direct— (D). 
Power— (P). 
Maintenance —  ( M ) . 
Supervision — (S). 
Rent— (R). 

4.  Administration — (A). 

5.  Sales— (S-) 

6.  General— (G-). 

7.  Assets— (T-). 

Fixed— (F). 
Current— (C). 

8.  Liabilities— (E-). 

Fixed— (F). 
Current— (C). 


66  EXECUTIVE  STATISTICAL  CONTROL 

CLASSIFICATION  OF  ACCOUNTS 

FACTORY  ACCOUNTS:     (Note:     Enter  under  "Account  Num- 
ber" on  Service  Card.) 

1—  LABOR—  (L) 

L-D-0    Direct  Labor  Total. 

L-D-1  Handling — Railroad  delivery  to  raw  storage  a1 
mills. 

L-D-2     Grinding — Raw  storage  to  ground  storage. 

L-D-3     Mixing — Ground  storage  to  delivery  chute. 

L-D-4    Moulding — Delivery  chute  to  driers. 

L-D-5     Drying — Care  in  driers. 

L-D-6     Setting  in  kilns — From  driers  to  kilns. 

L-D-7  Burning — Burners,  firemen,  coal  and  ash  hand- 
lers, daubers,  etc. 

L-D-8    Drawing — From  kilns  to  cars  or  yard. 

L-D-9  Rehandling  and  hauling — From  yard  to  cars,  tc 
city,  etc. 

L-P-0    Power  Labor  Total. 

L-P-1  Wages — Engineers,  firemen  and  oilers,  coal  and 
ash  handlers. 

L-P-2  Maintaining  Power  Plant — Heat,  light  and  main 
transmission — (Expense  Order-Number,  Re- 
serve Account).* 

L-P-3  Extraordinary  repairs  to  power  plant — (Expense 
Order-Number,  Reserve  Account). 

L-P-4 

L-M-0    Maintenance  Labor  Total. 

L-M-1  Factory  equipment — Machinery,  tools,  etc. 
(Expense  Order-Number,  Reserve  Account). 

L-M-2  Kilns,  stacks  and  flues — (Expense  Order-Num- 
ber, Reserve  Account.) 

L-M-3  Driers — (Expense  Order-Number,  Reserve  Ac- 
count. ) 


*  "Expense  Order-Number"  indicates  that  the  number  of  the  order 
authorizing  the  work  should  be  written  on  the  Service  Card.  "Re- 
serve Account"  indicates  that  the  charge  is  spread  out  over  the  year 
instead  of  all  being  charged  against  a  single  month's  operation. 


THE  COST  SYSTEM 


67 


L-M-4 


L-M-5 
L-M-6 
L-M-7 


Motors,  wagons  and  trailers — (Expense  Order- 
Number,  Reserve  Account.) 

Dies,  moulds  and  patterns — (Expense  Order- 
Number,  Reserve  Account.) 

Extraordinary  repairs — (Expense  Order-Num- 
ber, Reserve  Account.) 

(Note:  Use  L-T,  etc.,  for  Construction  Expense.) 

L-S-0    Supervision  Labor  Total. 

L-S-1     Superintendents  and  foremen. 

L-S-2     Factory  office. 

L-S-3    Bonus. 

L-S-4    New  moulds. 

L-S-5     Garage  and  stable  care  and  supervision. 

L-R-0    Rent  Labor  Total. 

L-R-1  Janitors  and  watchmen — (Expense  Order-Num- 
ber, Reserve  Account) . 

L-R-2  Upkeep  of  buildings,  yards — (Expense  Order- 
Number,  Reserve  Account). 

L-R-3  Extraordinary  repairs — (Expense  Order-Number, 
Reserve  Account). 

L-R-4 


2— MATERIAL—  (M) 

M-D-0    Direct  Material  Total. 

When  semi-processed  use  condition  symbols: — 


Ce- 
Ht— 
K  — 
R  — 
Re— 
S  — 
W  — 


M-D-  1 
M-D-  2 
M-D-  3 
M-D-  4 
M-D-  5 
M-D-  6 
M-D-  7 
M-D-  8 
M-D-10 
M-D-  9 

B 
Ch 
F 
G 
L 
Sa 
Sh 
V 
Sal 

68 


EXECUTIVE  STATISTICAL  CONTROL 


M-P-0    Power  Material  Total. 

M-P-1     Coal  for  power,  light  and  heat. 
M-P-2     Maintaining  power  plant,  heat,  light,  main  trans- 
mission— (Expense     Order-Number,     Reserve 
Account) . 

M-P-3     Extraordinary    repairs    to    power    plant — (Ex- 
pense Order-Number,  Reserve  Account). 
Purchased  power,  light. 
Purchased  water. 
Supplies. 


M-P-4 
M-P-5 
M-P-6 
M-P-7 


M-M-0    Maintenance  Material  Total. 

M-M-1  Factory  equipment — Machinery,  tools,  etc. — (Ex- 
pense Order-Number,  Reserve  Account). 

M-M-2  Kilns,  stacks  and  flues — (Expense  Order-Num- 
ber, Reserve  Account). 

M-M-3  Driers — (Expense  Order-Number,  Reserve  Ac- 
count) . 

M-M-4  Motors,  wagons  and  trailers — (Expense  Order- 
Number,  Reserve  Account). 

M-M-5  Dies,  moulds  and  patterns  (Expense  Order-Num- 
ber, Reserve  Account) . 

M-M-6  Extraordinary  repairs — (Expense  Order-Num- 
ber, Reserve  Account). 

M-M-7 


M  S-0    Supply  Material  Total. 

M-S-1     Superintendents,  foremen. 
Factory  office. 
Kiln  coal. 
New  moulds. 
Packing  materials. 
Setting  sand. 
Miscellaneous  indirect. 


M-S-2 
M-S-3 
M-S-4 
M-S-5 
M-S-6 
M-S-7 
M-S-8 


THE  COST  SYSTEM  69 

M-R-0    Rent  Material  Total. 

M-R-1     Janitors  and  watchmen. 

M-R-2    Upkeep     of    buildings    and    yards — (Expense 

Order-Number,  Reserve  Account). 
M-R-3     Extraordinary  repairs  to  buildings  and  yards — 

(Expense  Order-Number,  Reserve  Account). 
M-R-4 

3— CHARGES—  (C)     Distributed  according  to  a  carefully 
determined  pro-rating  chart.) 

C-D-0    Direct  Charge  Total. 

C-D-1  Insurance — On  life,  health,  etc.,  and  on  produc- 
tive equipment. 

C-D-2     Depreciation  productive  equipment. 
C-D-3     Welfare  work. 
C-D-4    Interest  productive  equipment. 
C-D-5 

C-P-0    Power  Charge  Total. 

C-P-1     Insurance — Boiler,  etc. 

C-P-2    Depreciation     power     plant — (Subdivide     with 

Operation  Numbers). 
C-P-3     Interest  on  power  plant. 
C-P-4 

C-M-0     Maintenance  Charge  Total. 

C-M-1     Insurance — Nonproductive  equipment. 

C-M-2  Depreciation — Nonproductive  equipment,  Sub- 
divide with  Operation  Nos.  into  N.  P.  Ma- 
chinery, Kilns,  etc. 

C-M-3     Interest  on  nonproductive  equipment. 

C-M-4 

C-S-0    Supervision  Charge  Total. 

C-S-1     Insurance — Liability  factory  office. 
C-S-2    Depreciation   factory,    office   furniture   and   fix- 
tures. 

C-S-3     Interest  on  factory,  office  furniture  and  fixture. 
C-S-4 


70  EXECUTIVE  STATISTICAL  CONTROL 

C-R-0    Rent  Charge  Total. 

C-R-1     Insurance — Fire  and  tornado  (buildings  or  yard) , 

C-R-2     Depreciation  buildings. 

C-R-3     Taxes. 

C-R-4    Interest  on  buildings. 

C-R-5 

GENERAL  ACCOUNTS. 

4— ADMINISTRATION—  (A) 
5— SALES—  (S) 
6— GENERAL—  (G) 
7— ASSETS—  (T) 

T-F-0     Fixed  Assets  Total. 

T-C-0    Current  Assets  Total. 
8— LIABILITIES—  ( E ) 

E-F-0    Fixed  Liabilities  Total. 

E-C-0     Current  Liabilities  Total. 

DEPARTMENT  NUMBERS — (DN) 
(Note — Enter  under  "Dept.  No."  on  Service  Card.) 

1 — Factory  Number  1. 

2 — Factory  Number  2. 

3 — Factory  Number  3. 
Bd — Burning  Dispatch  Office. 
Bs — Blacksmith  Shop. 
Cs — Carpenter  Shop. 
Fd— Factory  Dispatch  Office. 
Fo— Factory  Office. 
Ga — Garage. 
Ms — Machine  Shop. 
St— Stable. 

Sd— Stoker  Department. 
Sr — Store  Room. 
PP— Power  Plant. 


THE  COST  SYSTEM  71 

Important  Broad  Principles,  Not  Details.— A  sepa- 
rate book  could  be  written  for  each  type  of  business 
to  which  such  a  system  could  be  adapted.  I  do  not 
wish  to  do  more  at  this  time,  than  to  give  an  expo- 
sition of  the  system  merely  in  sufficient  detail  to 
make  clear  the  statements  in  the  chapters  that  follow. 
I  do  wish,  however,  to  emphasize  this  point  above  all 
others — that  irrespective  of  whether  the  factory  is  of 
the  continuous-production  type  or  of  the  job-cost 
type,  the  cost  system  should  be  the  same  in  principle. 
An  example  of  the  first  type  is  the  flour  mill,  where 
the  raw  material  in  the  form  of  wheat  is  operated 
upon  equally  by  each  department  and  comes  out  in 
the  final  form  of  flour.  The  machine  shop  that  does 
repair  work  for  the  neighborhood  is  an  example  of 
the  second  type.  Here  different  kinds  of  work  are 
done  by  different  machines  on  different  jobs  in  differ- 
ent series  of  departments.  To  be  sure,  what  is  most 
important  in  the  cost  system  of  one  type  of  factory 
may  be  of  minor  importance  in  that  of  the  other. 
Nevertheless,  all  the  elements  of  the  effective  cost  sys- 
tem must  be  present  in  both  cases,  although  they  will 
be  differently  accentuated. 

A  cost  system  must,  first  of  all,  be  of  the  common- 
sense  variety.  It  is  the  broad  principles  of  the  system — 
not  the  details — that  count.  Accountants  will  some- 
times argue  for  hours  as  to  just  how  a  charge  should 
be  made.  Whole  books  have  been  written  on  depre- 
ciation, and  the  American  Society  of  Mechanical  En- 
gineers devotes  a  considerable  portion  of  its  annual 
meeting  to  discussions  of  the  valuation  of  industrial 
properties.  It  is  very  easy,  when  selecting  and  in- 


72  EXECUTIVE  STATISTICAL  CONTUUL, 

stalling  a  cost  system,  to  digress  into  discussions  as 
endless  as  the  controversies  of  the  ecclesiastics  of  the 
tenth  and  eleventh  centuries  concerning  how  many 
angels  could  congregate  upon  the  point  of  a  needle. 
It  is  generally  safest  to  avoid  harrowing  and  fruit- 
less argument  by  admitting,  like  Sir  Eoger  de  Cov- 
erly,  that  " there  is  much  to  be  said  on  both  sides." 
A  debate  does  not  help  progress  in  the  installation 
of  a  system.  The  broad  principles  should  be  main- 
tained always.  The  details  must  be  settled  by  com- 
promise, or  little  will  be  accomplished. 

To  summarize,  the  ideal  cost  system  is  the  kind 
which,  with  the  fewest  and  simplest  printed  forms, 
furnishes  the  executive  with  exactly  the  statistics  he 
must  have  to  maintain  the  business  at  its  highest 
efficiency  with  the  least  possible  expenditure  of  labor. 
When  operating  conditions  are  normal,  it  must  con- 
sume only  as  much  of  his  time  as  he  need  give  to 
comprehend  quickly  the  true  status  of  affairs,  but  in 
time  of  emergency  it  must  require  him  to  give  to  the 
crisis  sufficient  time  and  attention  to  insure  a  suc- 
cessful issue.  That  is,  the  ideal  cost  system  is  flex- 
ible. It  furnishes,  at  all  times,  sufficient  detail  to  in- 
dicate the  trend  of  the  business,  and  when  necessary 
places  all  the  facts  before  the  investigating  execu- 
tive in  the  shortest  possible  time. 


CHAPTER  VI 

THE  PERSONAL  EFFICIENCY  OF  THE 
EXECUTIVE 

The  Inefficient  Executive.— H.  L.  Gantt,  who  is  in 
a  position  to  speak  on  the  subject  with  as  great  au- 
thority as  any  man  in  the  country,  has  of  late  had 
considerable  to  say  in  regard  to  the  inefficiency  of 
our  industrial  executives.  In  an  article  which  ap- 
peared in  The  Engineering  Magazine  a  few  years  ago 
he  makes  the  following  statement: 

So  far,  the  training  of  executives  in  democratic  countries 
has  been  left  largely  to  chance,  and  in  few  cases  have  the 
principles  by  which  successful  executives  must  be  guided  been 
even  vaguely  comprehended. 

Anyone  who  has  had  an  opportunity  to  study  the 
methods  of  even  three  or  four  executives  cannot  help 
noticing  that  no  two  of  them  handle  their  jobs  in  the 
same  way.  In  most  cases  the  men  in  charge  of  our 
corporations  "get  away  with  it"  by  means  of  a 
strong  personality  and  native  ability.  Because  they 
have  had  to  teach  themselves,  they  have  picked  up 
numerous  bad  habits  with  the  good  ones  that  they 
have  acquired.  And  in  a  good  many  cases  they  have 
reached  their  eminence  only  by  sheer  aggressiveness, 
will-power  and  ability  in  corporation  politics. 

Bernard  Shaw  once  described  the  typical  success- 
ful American  business  man  as  one  who  has  an  appear- 
73 


74  EXECUTIVE  STATISTICAL  CONTROL 

ance  of  "being  able  to  make  himself  infinitely  dis- 
agreeable." Some  executives  are  able  to  rule  their 
subordinates  simply  because  they  have  carefully  cul- 
tivated an  appearance  of  being  just  about  to  explode 
with  wrath.  A  number  of  years  ago  the  papers  were 
running  stories  of  a  certain  director's  meeting  at 
which  a  great  railroad  king  downed  all  opposition  to 
his  plans  by  beating  on  the  table  and  yelling  "Wow, 
wow,  wow!"  until  his  opponents  gave  up  in  despair. 

I  have  known  of  several  instances  in  which  an 
executive  has  gained  his  point  by  cleverly  acting  as 
if  he  were  in  a  towering  rage  when,  as  a  matter  of 
fact,  he  was  absolutely  cool.  Men  of  the  bargaining 
type  of  mind  often  resort  to  such  tricks.  "Tip  over 
the  apple  cart — perhaps  you  can  grab  something  in 
the  mix-up,"  seems  to  be  their  theory. 

Unfortunately  the  executive  type  of  mind  seldom 
possesses  more  than  ordinary  analytical  ability.  The 
type  of  mind  designed  to  force  results  is  not  usually 
the  type  which  enjoys  abstract  thought.  "You  can't 
meet  situations  until  they  arise,"  one  man  protested 
when  he  was  being  urged  to  lay  out  a  broad  policy  of 
action.  And  he  believed  it.  He  had  no  imagination 
with  which  to  visualize  the  future  in  the  light  of  the 
present.  His  capability  as  an  analyst  was  limited  to 
the  ability  to  examine  facts  as  they  presented  them- 
selves, and  the  possession  of  a  certain  "bargain  sense" 
which  enabled  him  to  read  his  opponents'  designs. 
He  was  a  man  of  indomitable  will,  and  possessed  a 
certain  ruthlessness.  Calling  these  qualities  into  play, 
and  taking  advantage  of  the  fact  that  certain  natural 
resources  of  the  country  were  unguarded  at  the  time, 


PERSONAL  EFFICIENCY  75 

he  had  amassed  millions  for  himself  and  his  asso- 
ciates. He  was  the  typical  "shrewd  business  man" 
who  was  for  a  long  time — in  fact  until  quite  recently 
— the  American  ideal  industrial  executive. 

It  has  been  my  good  fortune  to  know  fairly  well 
several  financial  leaders  of  that  race  which  is  some- 
times accused  of  being  interested  in  money  to  the 
exclusion  of  all  else.  My  acquaintance  with  them 
has  strikingly  impressed  me  with  their  development 
of  a  philosophy  of  business,  their  inclination — almost 
without  exception — to  speculate  upon  the  methods 
which  bring  success,  upon  the  broad  underlying  laws 
of  business.  Moreover,  I  have  been  impressed  with 
their  desire  to  foster  and  follow  high  ideals.  After 
all,  wooden  nutmegs  and  basswood  hams  are  planned 
by  narrow  minds.  The  idea  that  every  business  is 
" different,"  and  that  it  does  not  pay  to  plan  far 
ahead  because  sufficient  unto  the  day  is  the  evil 
thereof,  is  the  conception  of  shallow  and  short- 
sighted minds.  The  broad,  deep  thinkers,  whose 
ideas  and  ideals  have  both  kept  pace  with  and  aided 
America's  industrial  development  of  the  last  thirty 
years,  know  that  there  is  something  higher  than 
business  selfishness,  and  that  honesty  is  literally  the 
best  policy.  They  realize  that  at  the  foundation  of 
modern  business  administration  lies  a  philosophy  as 
noble  and  laws  as  exact  as  those  which  form  the  basis 
of  any  other  science.  They  appreciate  the  importance 
of  a  systematic  survey  of  the  field,  a  comprehensive 
analysis  of  facts,  a  relentless  follow-up  in  accordance 
with  the  policy  adopted,  and  effective  planning  of  all 
work. 


76  EXECUTIVE  STATISTICAL  CONTROL 

The  wolf  type  of  financier-executive,  however,  is  in- 
clined rather  to  make  business  forays  intermittently 
and,  between  forays,  to  lurk  in  his  lair  in  compara- 
tive inactivity.  He  is  inclined  to  wait  and  take  just 
what  chance  brings  him;  just  as  the  robber  barons 
would  wait  in  indolent  ease  in  their  castles  on  the 
Ehine  until  a  caravan  of  merchants  happened  to  pass, 
and  then  would  seize  what  they  could.  In  short,  he 
depends  almost  entirely  upon  luck  and  inspiration. 

Dangers  of  Impulse  and  Vanity. — It  is  extremely 
difficult  to  induce  men  of  this  type  to  conduct  a  busi- 
ness scientifically.  They  work  in  fits  and  starts. 
They  have  abundant  energy,  which  carries  them 
through  periods  of  long  hours  at  high  pressure. 
Their  methods  of  relaxation  are  often  as  fervid  as 
their  methods  of  work.  They  have  little  patience 
with  systems,  and  they  cut  their  way  through  con- 
vention and  precedent  with  an  utter  disregard  of 
the  consequences — we  have  had  ambassadors  and  cab- 
inet officers  of  this  type,  at  whose  actions  diplomats 
and  other  representatives  of  foreign  governments 
have  stood  aghast.  They  want  what  they  want  when 
they  want  it,  and  woe  betide  the  subordinate  who 
ventures  to  suggest  that  their  course  is  causing  un- 
told confusion  and  inefficiency  in  the  business.  Such 
men,  on  their  periodical  forays  through  the  works, 
will  fire  employees  right  and  left,  with  practically  no 
provocation,  regardless  of  the  fact  that  they  are 
weakening  the  authority  of  their  foremen  and  super- 
intendents and  are  destroying  discipline.  They  will 
change  the  sales  policy  of  the  company  overnight — 
and  then  change  it  back  again.  They  will  counter- 


PERSONAL  EFFICIENCY  77 

mand  the  orders  of  their  staff  with  no  regard  for 
the  feelings  of  their  fellow-executives,  or  of  their 
stockholders,  who  lose  thousands  of  dollars  as  a  re- 
sult of  such  lawlessness,  which  destroys  the  morale 
and  produces  general  chaos  from  one  end  of  the  busi- 
ness to  the  other. 

Unfortunately  such  tendencies  seem  to  "grow 
upon"  the  kind  of  executive  who  indulges  himself  in 
this  way,  but  who  is  nevertheless  "smooth"  enough 
to  maintain  his  control  of  the  voting  stock.  I  have 
seen  a  firm's  best  customers  lost  as  a  direct  result  of 
cavalier  treatment  which  was  wholly  the  outgrowth 
of  an  executive's  habit  of  disregarding  the  feelings 
of  his  associates.  I  have  known  of  executive  forces 
which  were  in  a  continual  state  of  turmoil  simply  be- 
cause the  management  itself  was  lawless.  New  offi- 
cers were  lured  in  by  the  offer  of  high  salaries, 
and  then  refused  to  endure  existing  conditions  for 
more  than  a  month  or  two.  Consequently  the  mem- 
bers of  the  force  had  to  keep  climbing  all  over  one 
another,  changing  places,  like  monkeys  in  a  sack.  I 
have  known  also  of  managers  refusing  even  to  talk 
with  persons  with  whom,  for  the  company's  best  in- 
terests, it  was  essential  to  consult — and  merely  be- 
cause those  managers,  for  one  reason  or  another,  dis- 
liked the  persons  in  question.  Such  displays  of  tem- 
perament may  be  valuable  press-agent  stuff  for  a 
grand  opera  prima  donna,  but  in  executives  who  are 
appointed  guardians  of  their  stockholders'  interests 
they  can  be  characterized  only  as  criminal.  I  have 
even  known  instances  in  which  heads  of  compa- 
nies were  too  vain  to  associate  with  their  official 


78  EXECUTIVE  STATISTICAL  CONTROL 

equals — to  confer  with  managers  of  other  and  per- 
haps larger  companies  for  purposes  of  mutual  ad- 
vancement and  benefit — simply  because  they  knew 
that,  to  do  so,  they  would  have  to  come  down  from 
those  pedestals  upon  which  they  had  placed  them- 
selves with  the  assistance  of  the  servile  flatterers 
they  had  gathered  about  them.  Such  managers  are, 
however,  becoming  rarer,  and  it  is  fortunate  for  in- 
dustrial America  that  they  are.  When  twenty  and 
thirty  per  cent  dividends  were  comparatively  easy  to 
earn,  many  abuses  could  flourish  which  can  no  longer 
survive,  now  that  the  Federal  Government  has  shown 
its  disapproval  of  dividends  of  over  eight  per  cent  by 
taxing  heavily  all  earnings  in  excess  of  that  amount. 

The  Efficient  Executive. — In  direct  contrast  to  the 
kind  of  executive  that  is  passing,  we  have  the  new 
type  of  administrator — the  scientific  manager — the 
analyst  and  diplomat.  Like  his  predecessor,  he  pos- 
sesses personality,  will,  and  a  knowledge  of  human 
nature,  all  of  which  are  essential ;  but  unlike  his  pred- 
ecessor, he  bases  his  decisions  upon  facts — not  upon 
a  " hunch,"  or  upon  that  mysterious  mumbo- jumbo 
known  as  "experience." 

Experience  is  a  fine  guide  if  a  man  is  sure  that  he 
will  never  encounter  any  problem  that  he  has  not  en- 
countered before,  and  encountered  often  enough  to 
learn  how  to  deal  successfully  with  the  conditions  in- 
volved. But  how  many  men  of  experience  at  the 
head  of  our  greatest  and  most  successful  industries 
have  ever  steered  a  hundred-million-dollar  corpora- 
tion through  a  world  war?  Yet  there  are  Schwabs 
and  Morgans  doing  that  very  thing  to-day.  No,  sir! 


PERSONAL  EFFICIENCY  79 

When  older  men  begin  to  prate  about  ''experience," 
nine  times  out  of  ten  you  can  bet  your  bottom  dollar 
that  they  are  trying  to  bluff  a  young  man — or  else 
that  they  mean  something  more  than  experience. 

In  the  fifteenth  century  Machiavelli  made  a  good 
general  statement  of  the  case  when  he  said: 

There  are  three  types  of  mind,  the  highest,  which  learns 
from  the  experience  of  others ;  the  mediocre,  which  learns  from 
its  own  experience;  and  the  ordinary,  which  learns  from 
neither  the  one  nor  the  other. 

But  the  modern  executive  must  go  a  step  further. 
He  must  not  only  learn  from  the  experience  of  others 
— he  must  be  able  so  to  analyze  a  situation  that  he 
will  be  able  to  reason  what  to  do  when  a  combination 
of  circumstances  arises  that  has  never  been  encoun- 
tered before  on  the  earth,  in  the  heavens  above  the 
earth,  nor  in  the  waters  under  the  earth.  How  long 
did  the  British  and  the  French  generals  last  who  were 
so  hidebound  by  what  they  called  experience  that 
they  failed  to  cope  with  German  attacks  on  land,  in 
the  heavens,  and  under  the  sea! 

A  certain  maturity  of  judgment  and  a  trained  mind 
are  prerequisites  to  success,  as  well  as  a  liberal  num- 
ber of  the  qualities  that  were  present  in  those  super- 
men whom  the  ancient  Greeks  called  philosophers.  It 
goes  without  saying  that  a  wide  knowledge  of  human 
nature,  a  thorough  grounding  in  practical  psychol- 
ogy and  a  confidence  in  self,  are  essential.  The  ques- 
tion of  how  the  executive  shall  employ  these  facul- 
ties and  qualities  in  his  dealings  with  associates  and 
subordinates  has  been  so  ably  answered  by  Professors 


80  EXECUTIVE  STATISTICAL  CONTROL 

Gowin  and  Jones  in  their  respective  texts*  that  I  shall 
not  attempt  to  deal  with  it  here. 

When  men  over  forty  refer  almost  with  reverence 
to  "the  confidence  that  comes  with  experience,"  un- 
fortunately most  of  them  do  not  have  in  mind  that 
desirable  self-confidence,  gained  in  past  crisis,  which 
enables  the  executive  to  meet  exigencies  successfully 
as  they  arise.  Too  many  of  them  are  describing, 
whether  they  know  it  or  not,  a  tendency  to  challenge 
the  ideas  of  the  rising  generation — an  antipathy  to 
any  and  all  innovation.  Our  great-grandfathers 
scoffed  at  the  telegraph,  our  grandfathers  at  the  aero- 
plane, our  fathers  at  scientific  management,  and  if 
we  are  not  careful  we  shall  find  ourselves  scoffing 
at  some  equally  important  means  or  sign  of  progress 
before  long — if  we  are  over  forty.  The  following 
statement  was  made,  not  long  ago,  by  one  of  the 
greatest  executives  I  know — a  man  only  thirty-eight 
years  old,  head  of  a  corporation  that  controls  a  mar- 
ket in  eight  states  through  sheer  efficiency  of  opera- 
tion. "I  am  watching  myself  very  closely  now — 
the  first  time  I  find  myself  resisting  an  innovation, 
because  it  is  an  innovation,  I  shall  turn  the  business 
over  to  the  younger  men  and  retire."  He  recognizes 
the  common  tendency  to  become  ultra-conservative 
as  one  grows  older,  and  has  decided  that  if  he  be- 
comes a  victim  of  it,  he  will  step  out  of  the  way  and 
allow  the  progress  in  his  business  to  continue. 

And  his  decision  is  a  good  one.   The  complex  busi- 

*  Gowin,  E.  B.,  The  Executive  and  His  Control  of  Men,  Macmillan 
Co.,  New  York.  Jones,  E.  D.,  The  Business  Administrator,  The  En- 
gineering Magazine  Co.,  New  York. 


PERSONAL  EFFICIENCY  81 

ness  problems  of  today  cannot  be  solved  by  men  who 
are  unwilling  to  adopt  the  latest  methods.  Experience 
alone  is  not  an  adequate  guide.  No  man  could  run 
any  corporation  a  single  hour  merely  on  the  strength 
of  his  experience.  The  analytical  mind  has  become 
a  necessity. 

Training  the  Staff.— An  important  duty  of  the  ad- 
ministrator who  has  just  been  quoted,  is  that  of  train- 
ing his  staff.  Executive  ability  has  been  denned  as 
the  art  of  getting  some  one  else  to  do  your  work  for 
you — and  the  description  is  not  far  from  the  mark. 
This  method'  of  procedure  does  not  by  any  means  be- 
token laziness  on  the  part  of  the  born  executive. 
Its  adoption  simply  implies  that  once  a  job  has 
been  decided  upon  and  the  constructive  work  in  con- 
nection with  it  has  been  carefully  planned,  the  de- 
tails hold  no  interest  for  the  mind  of  unusual  ability. 
Such  a  mind  seeks  other  kingdoms  to  conquer  and — 
to  fall  back  on  a  hoary  aphorism — "there  is  always 
room  at  the  top,"  either  in  the  executive's  own 
corporation  or  in  some  other.  The  far-sighted  man 
— the  man  who  will  make  progress,  and  whose  rapid 
rise  is  often  a  mystery  to  his  acquaintances — realizes 
these  facts,  and  that  is  why  he  is  always  training 
understudies  to  take  his  place,  instead  of  jealously 
guarding  what  he  has  learned  for  fear  some  one  will 
find  out  enough  about  his  job  to  get  it  away  from 
him.  The  successful  executive  is  a  pioneer,  and  the 
milestones  in  his  path  to  the  heights  are  the  men  he 
has  taught  to  fill  the  jobs  that  he  has  outgrown. 

A  safe  maxim  then  for  the  man  who  would  rise  is: 


82  EXECUTIVE  STATISTICAL  CONTROL 

Never  do  anything  yourself  which  one  of  your  subordinates 
could  do  for  you.  The  first  time  a  job  is  done  you  may  have 
to  do  it  yourself.  In  that  case  spend  your  time  as  lavishly 
upon  its  detail  as  is  necessary  in  order  to  insure  complete 
success.  Next  time,  teach  some  one  else  to  do  it.  The  third 
time,  kill  that  person  if  he  does  not  do  it  correctly. 

The  amount  of  time  that  mediocre  executives  spend 
on  useless  detail  is  appalling.  I  know  of  one  man 
who  dictates  innumerable  letters  beginning  "Yours  of 
the  llth  instant  received  and  contents  noted.  In  re- 
ply we  beg  to  state,  etc.,  etc."  One  of  his  stenog- 
raphers told  me  that  his  letters  are  a  standing  joke 
with  her  and  her  associates.  They  know  his  letters 
by  heart,  so  that  they  simply  scribble  nothings  while 
he  dictates.  When  he  comes  to  prices  and  quantities 
they  jot  those  down,  but  everything  else  they  com- 
pose themselves,  later.  I  suppose  that  this  man  frit- 
ters away,  on  the  whole,  a  third  of  his  time  and  a 
third  of  his  stenographers '  time  in  this  way — but  how 
he  does  enjoy  rolling  out  the  bromidiums  in  stentorian 
tones  to  his  apparently  respectful  slaves.  The  ste- 
nographers might  just  as  well  write  these  letters  from 
forms. 

Handling  Correspondence. — The  handling  of  the 
correspondence  often  determines  the  efficiency  of  the 
business.  In  this  connection,  it  might  be  stated, 
printed  forms  and  rubber  stamps  will  not  make  an 
executive.  At  the  same  time  they  may  be  valuable 
aids  to  a  naturally  poor  executive,  and  may  help  him 
to  become  a  better  one.  To  illustrate  what  I  mean  I 
shall  quote  a  written  recommendation  that  straight- 
ened out  a  number  of  snarls  in  the  correspondence  de- 
partment of  a  large  western  corporation. 


PERSONAL  EFFICIENCY  83 

DISPOSAL  CURRENT  BUSINESS. — It  is  essential  that  the 
management  of  any  large  concern  have  the  leisure  to  analyze 
operating  and  sales  conditions,  to  consider  questions  of  busi- 
ness policy  without  haste,  and  to  devise  various  new  methods 
of  increasing  the  profits,  of  increasing  the  sales,  and  of  raising 
the  general  efficiency  of  the  organization. 

In  order  to  give  such  matters  the  consideration  they  deserve, 
the  men  at  the  head  of  a  concern  must  be  freed  as  far  as  pos- 
sible from  detail. 

It  is  right  and  necessary,  however,  that  a  great  many  com- 
munications should  be  addressed  to  the  management — as  a 
matter  of  courtesy — and  to  convey  needful  information  to  the 
management  as  to  the  state  of  affairs  at  the  Company's 
factories  and  in  various  sections  of  the  sales  territory. 

Only  a  small  percentage  of  such  communications  demand 
personal  action  or  decision  on  the  part  of  the  management. 
Department  heads  and  assistants  of  various  sorts  are  quite 
capable  of  taking  care  of  a  large  number  of  such  letters. 

Furthermore,  if  as  great  a  proportion  as  possible  of  all 
letters  reaching  the  management  are  referred  to  others  for 
action,  a  good  many  matters  which  might  hang  fire  for  days, 
the  letter  lying  on  the  chief's  desk  until  he  had  time  to 
secure  the  necessary  details,  would  be  attended  to  at  once  by 
those  already  in  possession  of  full  information. 

In  order,  therefore,  to  keep  the  desks  of  the  management 
of  the  Imperial  Manufacturing  Company  as  clear  as  possible 
at  all  times,  to  facilitate  the  handling  of  business,  and  to 
place  responsibility  exactly,  the  two  following  stamps  have 
been  provided : 


Noted.  P.B.R.Pres. 

JUL  24 

B.f     »« 

Noted  -  J.C.P..  Gen.  Mgr. 
JUL  24 

R«f     tB 

We  recommend,  then,  that : 

I — All  letters  coming  to  the  desk  of  the  President  or  the 
General  Manager  be  stamped  at  once  by  them,  as  soon  as 
read,  with  their  respective  stamps  and  with  the  proper  date. 


84  EXECUTIVE  STATISTICAL  CONTROL 

II — That  all  such  letters  be  marked  at  that  time  with  an 
assistant's  initials,  and  referred  to  him  for  attention  when- 
ever possible,  and  given  to  the  messenger  boy  for  delivery. 

Ill — That  the  man  to  whom  the  letter  is  referred  be  in- 
structed to  return  the  letter  to  the  management  with  notation 
showing  what  action  has  been  taken,  as  soon  as  the  matter  has 
been  disposed  of. 

IV — That  the  stamp  then  be  crossed  out  by  the  Manage- 
ment and  the  letter  placed  in  the  "To  Be  Filed"  basket  as 
closed  business. 

Waiting  Line  a  Menace  to  Efficiency. — Some  execu- 
tives are  miserably  unhappy  unless  at  least  one  per- 
son is  always  waiting  to  see  them.  But  if  they  are 
rushing  through  one  interview,  incidentally  missing 
half  its  fine  points — and  it  is  the  little  shadings  of 
the  voice  and  the  unconscious  facial  expressions  that 
disclose  much  of  a  man's  real  purpose — so  they  can 
begin  to  rush  through  another  in  the  same  way,  they 
are  happy.  They  feel  sure  that  they  are  very  busy 
and  that  they  are  earning  their  salaries.  One  man 
I  knew  was  even  boor  enough  to  read  his  mail  while 
men  of  thrice  his  caliber  were  talking  to  him  about 
important  matters.  When  he  had  finished  half  an 
hour  of  such  a  performance  he  knew  neither  what 
was  in  the  letters  nor  what  had  been  said  to  him, 
and  his  caller  would  go  out  of  the  office  mad  enough 
to  indulge  in  almost  any  revenge.  And  the  company 
naturally  suffered — it  is  hard  to  tell  how  many  thou- 
sand dollars  were  lost  because  of  this  man's  inex- 
cusable practice. 

At  one  time  I  was  engaged  in  organizing  the  plan- 
ning department  of  a  large  metal-working  company, 
a  piece  of  work  that  involved  the  compilation  of  a 


PERSONAL  EFFICIENCY  85 

considerable  amount  of  information  in  the  auditor's 
office.  A  short  time  before,  the  chief  had  been  com- 
plaining about  how  badly  he  was  overworked — how  it 
was  impossible  for  his  department  to  keep  ahead  of 
their  work,  and  how  much  he  needed  more  men.  An 
hour  in  his  office  told  the  story.  Actually,  during  the 
time  I  spent  there  at  least  two  or  three  men — an  aver- 
age estimate — were  waiting  about  his  desk  to  ask  him 
questions.  Sometimes  there  were  six  or  seven.  At 
first  I  thought  the  trouble  was  caused  entirely  by  a 
desire  on  the  part  of  the  executive  to  feel  busy  and 
important,  but  I  very  soon  found  that  I  was  wrong. 
An  experience  of  the  young  man  I  was  working  with 
made  the  matter  clear.  We  were  going  over  some 
store  cards.  As  soon  as  we  struck  one  we  did  not 
understand,  this  youngster  started  for  the  chief  like 
a  bloodhound  that  has  slipped  his  leash.  He  joined 
the  crowd  of  five  or  six  around  his  chief  and  stood 
there  ten  minutes  until  his  question  could  be  an- 
swered, meanwhile  leaving  me  to  busy  myself  as  best 
I  could.  Five  minutes  later  he  repeated  the  perform- 
ance. That  was  enough.  It  was  clear  that  the  chief 
needed  to  use  a  blacksnake  whip — or  its  mental  equiv- 
alent— to  clear  out  the  crowd  of  employees  around 
him  who  preferred  to  sit  on  the  edge  of  his  table 
and  wait  rather  than  use  their  brains.  The  trouble 
was,  that  man's  job  bossed  him — he  didn't  boss  his 
job.  He  was  working  himself  sick,  a  third  of  his 
clerks  were  loafing — and  he  didn't  know  how  to  mend 
matters. 

I  told  my  young   assistant  thereafter,  instead   of 
working  at  the  cards  two  five-minute   periods   and 


86  EXECUTIVE  STATISTICAL  CONTROL 

then  waiting  two  ten-minute  periods  we  would  segre- 
gate all  the  cards  we  couldn't  puzzle  out,  and  have 
all  our  questions  answered  at  one  time.  While  I  did 
not  know  exactly  how  much  time  this  plan  would 
save,  I  did  know  that  it  would  save  a  great  deal. 
And  I  knew,  also,  that  if  every  one  in  the  department 
should  adopt  the  same  simple,  but  important  rule, 
the  Chief  could  both  turn  out  all  the  work  of  the  de- 
partment on  time  and  dispense  with  at  least  a  quar- 
ter of  his  clerical  force. 

Bossing  Your  Job. — One  of  the  greatest  mistakes 
made  by  executives  is  that  of  taking  what  comes  to 
them — instead  of  sending  for  what  they  ought  to 
have.  That  fact  cannot  be  too  strongly  emphasized. 
The  man  who  lets  his  subordinates  determine  what 
they  shall  take  up  with  him,  fche  man  who  lets  chance 
determine  what  visitors  he  shall  have,  the  man  who 
lets  his  job  boss  him  instead  of  bossing  his  job — that 
man  is  not  doing  his  duty  by  himself  or  by  his  com- 
pany. Once  you  have  taught  your  subordinates  what 
kinds  of  questions  they  must  answer  for  themselves, 
and  what  kinds  of  questions  they  cannot  answer  be- 
cause they  have  not  had  access  to  all  the  informa- 
tion which  the  boss  is  in  a  position  to  secure,  then 
it  is  all  well  and  good  to  let  them  use  their  judgment 
as  to  when  they  are  justified  in  using  your  time  in 
consultation.  Such  an  arrangement  will  prove  an  ex- 
cellent preventive  of  such  a  chaotic  state  of  affairs 
as  I  have  just  described. 

After  you  have  taught  your  office  boy,  your  stenog- 
rapher, or  your  secretary  how  to  interview  visitors 
tactfully  and  how  to  weed  out  those  who  have  no 


PERSONAL  EFFICIENCY  87 

business  to  consume  your  time  during  office  hours, 
you  are  safe  in  seeing  the  other  visitors  that  remain 
on  the  list.  The  man  who  wants  to  borrow  money, 
the  man  who  sends  in  his  personal  card  with  the  re- 
quest that  he  may  see  you  a  moment  on  "  personal 
business" — and  who,  if  he  does  see  you,  unfolds  a 
compendium  of  the  "World's  Best  Poems"  from  his 
coat-tail  pocket,  and  the  man  who  has  an  axe  to 
grind,  all  will  seek  you.  But  are  these  the  most 
important  men  for  you  to  see  if  you  wish  to  serve 
your  company,  and  incidentally  yourself,  to  the  best 
advantage? 

If  you  will  analyze  your  job  and  will  lay  out  the 
work  in  such  a  manner  that  important  matters  al- 
ways and  forever  take  precedence  over  unimportant 
matters,  and  then  if  you  will  resolve  to  stick  to  the 
important,  come  what  may,  you  will  find  that  you  are 
master  and  that  that  hurried,  inefficient  busy  creature 
who  was  fretting  himself  into  an  early  grave  has  be- 
come only  the  memory  of  a  nightmare. 

It  is  by  no  means  easy  to  arrange  matters  on  this 
basis,  but  it  is  essential  to  do  so.  The  principle  in- 
volved is  the  all  important  thing;  the  application  of 
the  principle  will  naturally  vary  with  each  individual 
case.  Not  every  one  is  born  to  the  captaincy  of  a 
corporation  and  steps  into  control  of  a  corps  of 
trained  secretaries  one  of  whom  places  on  his  desk 
each  morning  a  schedule  for  the  day  showing  the 
time  and  place  set  for  every  appointment,  the  names 
of  the  persons  to  be  met,  and  a  digest  of  all  the  im- 
portant matters  to  be  discussed.  Not  every  one  can 
have  a  secretary  hovering,  watch  in  hand,  outside  the 


88  EXECUTIVE  STATISTICAL  CONTROL 

door  during  an  interview,  prepared  to  choke  off  the 
visitor  with  a  tactful  but  incontrovertible  excuse 
when  the  appointed  time  has  been  consumed. 

Oliver  Wendell  Holmes  used  to  plan  a  verbal  to- 
boggan slide,  whereby  to  get  rid  of  callers,  toward 
which  he  would  tactfully  urge  his  visitors  from  the 
country  who  could  not  find  words  that  would  termi- 
nate their  visits.  We  may  have  to  follow  his  exam- 
ple. Or  we  may  have  to  cultivate  that  old  school 
courtesy  of  President  Hadley's — as  soon  as  the  busi- 
ness of  an  interview  is  really  concluded,  he  stands 
at  the  open  door  bowing  to  the  visitor  until  the  lat- 
ter bows  himself  out  involuntarily,  through  the  very 
force  of  example.  We  may  have  to  install  a  buzzer 
which,  touched  with  the  knee  summons  our  stenog- 
rapher— or  some  other  fellow-conspirator — from  the 
next  room  with  the  startling  news  that  the  building 
is  on  fire,  that  grandmother  has  just  thrown  a  fit, 
or  that  John  D.  Morganfeller  is  waiting  for  us  in 
the  corridor. 

A  secretary  can  make  appointments  for  you,  but 
he  cannot  keep  them  for  you.  It  is  a  simple  mat- 
ter for  the  executive  to  make  appointments  by  tele- 
phone, without  the  assistance  of  a  secretary.  Ap- 
pointments must  be  kept  to  the  minute.  The  only 
valid  excuse  for  not  keeping  an  appointment  is  the 
death  of  the  man  who  made  it.  If  you  are  late  in 
making  your  appearance,  you  not  only  insult  the 
man  whom  you  keep  waiting,  but  you  acknowledge 
that  you  are  a  liar  and  a  cheat — and  there  is  abso- 
lutely no  excuse  which  you  can  make.  If  this  is 
clearly  understood  by  business  men  in  their  dealings 


PERSONAL  EFFICIENCY  89 

with  one  another,  not  only  can  an  immense  amount 
of  time  be  saved  by  all  concerned,  but  the  work  of 
each  can  be  planned  and  performed  with  remarkable 
efficiency. 

The  Limited  Interview. — The  arranging  of  a  sched- 
ule is  not  so  easy.  Matters  are  simplified,  of  course, 
if,  on  account  of  the  importance  of  your  position,  peo- 
ple will  accept  your  ruling  as  to  when  you  will  see 
them.  But  most  of  us  are  not  such  great  men  that 
the  public  will  excuse  us  from  abiding  by  what  the 
world  chooses  to  call  the  laws  of  common  courtesy. 
We  must  therefore  either  have  regard  for  the  con- 
venience of  our  visitors,  or  have  some  tactful  person 
indulge  in  polite  fiction  of  some  sort  in  the  interest  of 
our  efficiency. 

If  you  decide  to  see  a  visitor  when  you  should  not 
take  the  time,  you  should  frankly  tell  him  that  you 
are  giving  him  valuable  time,  and  then  keep  the 
interview  within  reasonable  limits.  I  used  to  know 
a  man  who  apologized  so  beautifully  that  I  suspected 
him  of  insulting  people  just  to  secure  the  opportunity 
to  make  them  firmer  friends  by  using  his  most  en- 
gaging manner  in  making  reparation.  If  you  will 
take  your  visitor  into  your  confidence,  explain  the 
situation,  with  both  frankness  and  regret,  and  send 
him  out  of  the  office  warm  with  the  glow  of  having 
done  a  friend  a  favor,  you  can  finish  your  work  and 
at  the  same  time  avoid  giving  offence.  The  men  in 
college  who  are  the  most  popular  are  not  those  who 
are  always  ready  and  eager  to  drop  their  work  for 
a  visitor.  They  are  the  men  who  will  devote  ten  min- 
utes to  a  friend  whole-heartedly,  and  then  chase  him 


90  EXECUTIVE  STATISTICAL  CONTROL 

out  of  the  room.  Exactly  the  same  thing  is  true  in 
business. 

A  limited  interview  has  its  benefits  for  the  caller 
as  well  as  for  the  man  who  receives  him.  A  good 
salesman  will  make  a  better  selling  talk  if  he  knows 
that  he  has  only  fifteen  or  twenty  minutes  in  which 
to  do  business,  and  that  he  must  "put  it  over"  in  that 
time,  than  if  he  knows  that  he  has  the  whole  after- 
noon to  dawdle  along  in,  and  so  doesn't  have  to 
"make  it  snappy."  A  man's  whole  and  eager  at- 
tention for  ten  minutes  is  worth  more  to  a  visitor,  if 
the  latter  only  knew  it,  than  an  hour  of  half-hearted 
hospitality.  A  sales-manager  not  long  ago  analyzed 
for  my  benefit  business  methods  in  two  cities — one 
of  them  noted  for  the  great  amount  of  business  it 
transacts  with  dispatch,  the  other  notorious  for  its 
sloth  and  lack  of  enterprise.  The  two  anecdotes  that 
he  told  photographed  the  situation: 

"Just  as  Thompson  came  out  of  his  private  office 
a  man  stuck  his  head  in  the  door  and  shouted,  'Are 
you  on?'  Thompson  nodded.  'How  much?'  'Thirty 
thousand,'  said  Thompson,  and  the  deal  was  closed." 

"Two  days  later  I  called  on  Walsingham  in . 

He  listened  to  me  politely  for  three  hours.  Then  he 
told  me  he  would  have  to  think  it  over — to  come  back 
next  day.  The  next  day,  after  about  an  hour's  talk, 
he  said  he  would  have  to  see  his  banker,  took  me 
out  and  bought  me  a  drink,  and  told  me  to  come 
back  in  about  two  days.  I  was  just  boob  enough 
to  fall  for  it.  He  gave  me  another  hour,  and  then 
asked  me  to  take  it  up  again  in  a  week!  Oh  yes,  he 
was  polite,  blasted  polite!  But  the  next  time  I  try 


PERSONAL  EFFICIENCY  31 

to  do  business  in  that  town,  just  turn  in  a  call  for 
Bellevue— I'm  through!" 

Conserving  Time  and  Energy. — Perhaps  the  execu- 
tive who  is  just  at  the  point  where  he  needs  a  pro- 
fessional secretary  is  the  one  who  has  the  greatest 
amount  of  difficulty  in  doing  his  own  work  effectively, 
in  seeing  outside  visitors  as  promptly  as  courtesy 
demands,  and  in  avoiding  wasting  the  time  of  those 
subordinates  who  have  legitimate  reasons  for  demand- 
ing a  share  of  his  time.  Many  such  men  in  the  coun- 
try waste  a  great  deal  of  their  assistants'  time. 
They  are  like  a  certain  executive  I  know,  who  is  at 
the  head  of  a  concern  employing  nearly  two  thousand 
men.  If  you  should  want  to  see  him  you  had  better 
make  up  your  mind  to  waste  several  hours  in  doing 
so.  The  procedure  would  be  something  like  this: 
About  nine  o'clock  you  would  phone  to  find  out  if  he 
were  in  the  office  or  if  he  were  to  be  there  that  morn- 
ing. If  he  should  be  out,  but  should  be  expected 
later,  you  would  phone  him  some  time  after  that  for 
an  appointment.  He  would  tell  you  to  come  in  about 
eleven  o'clock.  Promptly  on  the  minute  you  would 
arrive — only  to  find  him  conferring  with  two  or  three 
other  men.  You  would  hover  around  the  glass  par- 
tition for  fifteen  or  twenty  minutes — he  always  sits 
with  his  back  to  the  door — and  then,  as  the  confer- 
ence would  seem  likely  to  last  indefinitely  you  would 
go  back  to  your  work.  A  little  later  in  the  day  you 
would  return,  only  to  find  him  closeted  with  some 
one  else.  The  next  time  you  returned,  he  would 
have  gone  out  to  lunch,  and  in  the  afternoon  you 
would  be  told  he  had  gone  to  the  works. 


92  EXECUTIVE  STATISTICAL  CONTROL 

There  were  always  two  or  three  men  hovering 
around  that  manager's  door  all  the  time — high-priced 
executives,  anxious  to  get  a  word  in  edgewise.  Any 
number  of  important  matters  that  should  have  been 
attended  to  promptly  lagged  along  for  several  days, 
and  thousands  of  dollars'  worth  of  time  was  wasted 
every  year.  If  that  man  did  not  feel  that  conditions 
warranted  his  having  a  professional  secretary — and 
they  really  did — he  could  at  least  have  had  his  pri- 
vate stenographer  keep  a  schedule  of  appointments 
on  his  desk,  and  then  he  could  have  made  an  attempt 
to  live  up  to  it.  The  adoption  of  such  a  course  would 
have  prevented  the  necessity  of  any  one's  waiting 
around  outside  his  office.  Moreover,  whoever  wished 
to  see  him  could  simply  have  phoned  the  stenog- 
rapher for  an  appointment;  and  whenever  the  execu- 
tive was  late,  the  stenographer  could  have  changed 
the  time  of  the  appointment.  Such  a  schedule  is  the 
means  of  saving  far  more  than  the  time  it  takes  to 
prepare  it. 

Planning — The  "Tickler"  System. — Some  time  dur- 
ing the  day  you  must  plan  your  work.  If  you  do  this 
planning  piecemeal  you  will  be  sure  to  leave  some 
important  matters  until  so  late  in  the  day  that  it 
will  be  impossible  to  attend  to  them.  Very  often,  if 
planning  is  done  in  a  hit-or-miss.  fashion,  matters 
which  could  have  been  arranged  in  an  instant  by 
phone  early  in  the  morning,  have  to  be  frantically 
looked  up  later  in  the  day,  and  consume  half  an  hour 
or  more.  Piecemeal  planning  also  requires  going  over 
the  same  ground  time  and  again  in  order  that  busi- 
ness which  has  been  overlooked  may  be  attended  to. 


PERSONAL  EFFICIENCY 


93 


/    2-. 


0  0 

A 


X 

O             O             < 
B         ^ 

, 

C<A>0« 

UO-kv.Si&^ti^.    Ho. 

3 

tyncLnjL.  Ux-vs*  #un/w 

£W 

^ 

"            (/       "      Uji^rv 

r«AM 

ryCT/ 

CWJt,  "R  O.  ^Vti 

^ 

yl.,,,1  wJr:^  tbt^Lu 

tL 

^0 

tu_    V-t^-^lti^J-*^1^ 

V*Ai£  S/^vU^v 

JW^HOJL  /5>IZI21-< 

^— 

FIG.  5.      PAGES  FROM  AN  EXECUTIVE'S  NOTEBOOK 

As  soon  as  he  arrives  at  the  office,  the  executive  jots  down  in  his  note- 
book the  things  to  be  done  that  day.  He  then  marks  the  order  of 
their  importance  in  the  left-hand  column.  When  two  or  more  mat- 
ters can  be  taken  up  with  one  man,  both  are  given  the  same  number, 
thus  "1 — "  is  the  most  important  item  slated,  the  dash  indicating  that 
there  are  other  matters  to  be  taken  up  with  the  same  man.  A 
period  following  the  number  indicates  that  this  is  the  last  or  only 
item  to  be  taken  up  with  that  one  man.  When  one  of  the  duties 
scheduled  cannot  be  performed,  a  long  dash  is  placed  before  the 
figure,  and  when  a  matter  is  disposed  of  it  is  then  checked  off.  The 
second  page  (B)  shows  subjects  which  have  been  jotted  down — 
perhaps  for  a  week  past,  to  be  taken  up  with  one  man  (Perkins 
in  this  instance)  at  the  time  of  the  next  trip  to  Plant  No.  3. 

If  all  work  is  planned,  as  far  as  possible,  the  first 
thing  in  the  morning  and  a  note  of  the  things  to  be 
done  is  jotted  down  in  a  memorandum  book,  it  will 
not  be  necessary  to  go  over  the  ground  more  than 
once.  (See  Figure  5.)  Everything  will  be  covered 


94  EXECUTIVE  STATISTICAL  CONTROL 

logically  in  sequence,  and  at  the  proper  time.  Any 
one  who  has  tried  such  a  system  appreciates  its  value: 
points  written  down  cannot  be  overlooked  or  forgot- 
ten, and  the  matters  on  the  memoranda  recall  others, 
associated  with  them.  The  various  items  should  be 
numbered  in  the  order  of  their  importance;  then  the 
important  things  will  be  done  first  and  the  unimport- 
ant will  be  left  till  later.  Consequently  if  any  mat- 
ters have  to  be  long  postponed  they  will  be  those  the 
temporary  neglect  of  which  will  mean  the  least  loss 
to  the  firm. 

Some  men  expand  this  "tickler"  system  to  cover 
several  pages  in  their  notebooks.  The  first  page  is 
devoted  to  memoranda  on  the  work  for  the  day.  The 
second  page  contains  notes  concerning  business  which 
should  be  attended  to  in  the  immediate  future,  but 
which  might  be  overlooked  df  memoranda  were  not 
made.  A  third  page  lists  affairs  to  be  attended  to  in 
the  more  remote  future,  or  at  certain  factories,  or 
points  to  be  discussed  with  certain  individuals  who 
are  seen  periodically.  While  the  value  of  the  calen- 
dar pad  is  too  widely  known  to  call  for  special  com- 
ment, it  is  a  surprising  fact  that  comparatively  few 
men  use  it  to  the  best  advantage. 

Follow-up  Illustrated. — The  cultivation  of  the  mem- 
ory is  by  all  means  desirable,  but  the  memory  is  not 
a  safe  court  of  last  appeal  for  the  executive  of  today 
who  must  do  a  great  amount  of  detailed  work,  and 
who  must  be  able  at  any  time  to  produce  accurate 
data  at  a  moment's  notice.  The  use  of  a  pocket  note- 
book, together  with  larger  notebooks  for  the  desk,  in 
which  to  note  necessary  details  for  attention  at  the 


PERSONAL  EFFICIENCY  95 

proper  time,  enables  the  executive  to  concentrate  his 
time  and  energy  upon  the  important  problems  at 
hand. 

A  sure  and  relentless  follow-up  of  the  kind  de- 
scribed is  one  of  the  greatest  possible  aids  to  execu- 
tive effectiveness  imaginable.  Any  one  who  has  not 
had  actual  experience  in  such  matters  can  hardly 
imagine  the  amount  of  conferring  and  order-giving 
that  comes  to  nothing  in  a  large  corporation.  I  re- 
member a  general  manager's  once  telling  me  about 
the  case  of  an  influential  stockholder  who  never  forgot. 
"Most  of  my  directors,"  he  said,  "who  want  some- 
thing done,  forget  all  about  it  in  a  little  while.  So 
it  is  usually  easier  to  agree  with  them  than  to  argue. 
But  Blank,  he  is  the  very  devil.  He  never  forgets 
about  anything  he  tells  you  to  do."  The  manager 
found  it  difficult  to  explain  how  this  man  remembered 
unfailingly.  Blank,  as  I  found  out  later,  had  a  little 
notebook  in  which  he  made  a  note  of  everything  he 
thought  the  general  manager  ought  to  do.  And  he 
didn't  cross  out  any  note  until  he  knew  for  certain 
that  his  directions  had  been  carried  out!  He  certainly 
was  the  very  devil — for  getting  things  done. 

It  can  be  said  without  fear  of  exaggeration  that 
persons  in  authority  give  thousands  of  orders  that  are 
never  carried  out.  Many  harrassed  minor  executives 
have  been  brought  up  in  the  belief  that  no  matter 
how  many  extra  hours  they  have  to  put  in,  they  must 
exert  superhuman  energy  and  do  every  job  that  comes 
their  way.  They  listen  to  the  dictum  of  the  boss  re- 
spectfully and  then,  if  circumstances  will  not  allow 
them  to  accomplish  what  he  has  given  them  to  do, 


96  EXECUTIVE  STATISTICAL  CONTROL 

they  simply  hope  he  will  forget  what  he  has  told 
them.  And  he  usually  does,  if  the  foreman  hasn't 
been  foolish  enough  to  argue  the  matter  and  so  im- 
press matters  on  the  boss's  memory.  The  boss  is  to 
blame.  Either  the. order  shouldn't  have  been  given, 
or  else  it  should  have  been  followed  up  systemati- 
cally until  it  was  carried  out  to  the  letter.  After  one 
or  two  follow-ups,  there  is  less  need  for  them  in  the 
future — and  discipline  throughout  the  organization 
improves  decidedly. 

Another  quotation  from  a  recommendation  made 
to  the  western  corporation  mentioned  in  this  chapter 
will  help  to  show  the  value  of  the  follow-up  method. 

CONSISTENT  FOLLOW-UP. — It  has  become  a  firmly  established 
rule  of  the  successful  American  corporation  that  decisions 
must  be  made  promptly — once  the  situation  has  been 
thoroughly  investigated — and  that  as  soon  as  the  decision  is 
reached,  it  must  be  followed  immediately  by  vigorous  action. 

A  Fabian  policy  is  often  extremely  successful  in  politics 
or  in  trading  and  bargaining,  but  it  is  ruinous  where  those 
kept  in  suspense  are  members  of  an  executive  organization. 
In  order  to  avoid  unnecesary  and  inefficient  action,  therefore, 
and  to  avoid  entire  lack  of  action  at  a  time  when  it  should  be 
vigorous  on  the  part  of  the  various  members  of  a  company's 
staff  and  line  organizations,  decisions  should  be  reached  by  the 
management  as  soon  after  the  facts  are  set  before  them  as 
possible.  Such  decisions  must  be  followed  up  vigorously  by 
the  management  if  discipline  is  to  be  maintained,  if  the 
various  members  of  the  organization  are  to  act  in  concert,  and 
if  the  business  is  to  be  operated  efficiently. 

Furthermore,  the  moral  effect  upon  members  of  the  line  is 
bad  if  the  management  of  a  company  demands  certain  in- 
formation or  certain  action  from  subordinates,  and  then 
ignores  the  failure  of  the  information  to  appear,  or  of  the 
action  to  be  carried  out  as  directed.  Under  such  conditions 
the  subordinates  very  quickly  find  out  that  promises  satisfy 
their  superiors  quite  as  well  as  action,  and  that  the  easiest 


PERSONAL  EFFICIENCY  97 

way  to  forestall  criticism  is  to  insist  volubly  that  "every- 
thing is  all  right."  For  this  reason,  requests  for  informa- 
tion and  orders  issued  must  be  followed  up  consistently  by 
the  executive  until  the  results  desired  are  secured,  if  he  is  to 
be  fair  to  all  and  is  to  do  his  part  in  insuring  the  efficient 
operation  of  the  business  in  all  departments. 

The  supreme  authority  in  any  business  is  necessarily  vested 
in  one  man.  Whether  he  gives  his  orders  directly  to  the 
Factory  and  Sales  Managers,  or  whether  he  delegates  his 
authority,  and  his  orders  are  transmitted  to  the  departmental 
heads  through  associates  in  management,  he  necessarily  has 
always  given  certain  orders  which  have  not  been  carried  out. 
The  higher  a  man's  position,  the  greater  the  necessity  that 
he  be  consistent  if  he  is  to  secure  the  respect  which  he  must 
have  to  administer  the  business  effectively  of  which  he  is 
trustee.  When  the  chief  executive  gives  orders,  therefore,  he 
should  see  that  they  are  carried  out  at  all  costs,  whether  they 
be  given  to  his  assistant  executives  or  directly  to  depart- 
mental managers. 

Remedy  for  Executive  Inefficiency. — I  have  seen 
many  an  executive  conference  that  consisted  of  a 
debate  in  which'  the  affairs  of  the  company  were 
settled  and  resetttled  to  the  satisfaction  of  all  present; 
every  one  voiced  his  own  pet  ideas — and  not  one 
thing  was  done  as  a  result  of  the  conference!  After 
the  debate  every  one  walked  out  feeling  that  he  had 
more  than  earned  his  salary  for  the  day.  And  yet, 
what  appeared  to  be  everybody's  business  was,  in 
the  end,  nobody's  business;  since  no  very  clear  con- 
clusion had  been  reached,  no  one  felt  impelled  to  see 
that  the  mass  of  verbiage  was  translated  into  action 
in  any  quarter. 

The  remedy  for  such  executive  inefficiency  lies  in 
the  application  of  the  following  three  simple  rules: 

1.  Never  give  an  order  unless  you  intend  to  see  it  carried 
out. 


98  EXECUTIVE  STATISTICAL  CONTROL 

2.  Never   change  an  order  unless  the  conditions  which 
gave  rise  to  it  have  altered. 

3.  Never  cease  following  up  an  order  until  it  has  been 
carried  out  to  the  letter. 

It  may  be  a  difficult  matter  to  establish  a  reputa- 
tion for  carrying  out  these  rules  relentlessly  and  with- 
out exception,  but  once  your  subordinates  know  that 
you  mean  what  you  say,  your  work  will  become  de- 
cidedly easier.  Every  time  you  give  an  order  and  do 
not  follow  it  up,  you  are  bluffing — and  it  will  not  pay 
you  to  bluff  in  an  organization.  You  will  be  dis- 
covered, and  then  your  orders  will  be  no  more  re- 
garded than  the  threats  of  those  foolish  mothers  who 
try  to  command  the  obedience  of  their  children  by 
telling  tales  of  goblins  and  other  dire  apparitions. 
Nobody  believes  a  liar  even  when  he  is  telling  the 
truth. 

The  executive,  if  he  is  to  be  successful,  must  teach 
his  subordinates  that  he  means  exactly  what  he  says 
— no  more  and  no  less.  Unconsidered  words  lead  to 
serious  dilemmas.  A  bride  I  knew  told  her  Japanese 
house  boy,  on  one  occasion,  that  the  next  time  he  did 
not  come  home  when  he  promised,  she  would  dis- 
charge him.  Soon  afterwards,  when  he  had  an  after- 
noon off,  his  friends  proved  alluring,  and  when  he 
finally  returned  he  had  delayed  dinner  for  hours. 
The  lady  knew  that  she  could  not  get  another  servant 
to  compare  with  Tenigero,  so  she  was  in  the  un- 
pleasant position  either  of  having  to  appear  to  her 
servant  as  a  self-convicted  liar,  or  of  losing  a 
treasure.  The  executive  who  attempts  to  rule  by 
bluffing  finds  himself  in  a  similar,  but  far  more  serious 


PERSONAL  EFFICIENCY  99 

situation.  If  you  would  preserve  discipline,  con- 
serve your  time,  and  increase  your  efficiency  as  an 
executive,  never  imply  that  you  will  do  anything  that 
you  are  not  prepared  to  do  literally — even  if  you  may 
have  to  work  ten  nights  on  a  trial  balance  yourself,  or 
take  off  your  coat  and  fire  the  boilers,  to  make  good. 
Delegating  Authority. — It  is  essential  to  discipline, 
and  therefore  to  efficiency,  that  the  executive  support 
his  subordinates.  My  first  assistant-superintendent 
came  to  me  one  day,  almost  with  tears  in  his 
eyes,  utterly  discouraged  because  certain  men  were 
meeting  his  orders  with  the  statement  that  the  boss 
had  ordered  to  the  contrary.  The  trouble  was 
explainable  partly  by  the  fact  that  the  foreman  had 
been  accustomed  to  taking  orders  from  me  and  the 
habit  continued  strong.  In  certain  instances,  men 
who  were  jealous  of  my  assistant's  rise  went  out  of 
their  way  to  obtain  orders  from  me  so  that  they  could 
indulge  themselves  in  the  joy  of  thumbing  their  noses, 
as  it  were,  at  a  person  whom  they  considered  an  up- 
start. Then  there  was  that  ever-present  type  of 
workman  who  will  always  go  to  headquarters  for  his 
orders  if  you  will  let  him,  much  as  the  patrons  of 
the  country  store  always  insist  on  being  served  by 
the  proprietor.  The  result  of  conditions  was  that  the 
assistant  superintendent,  whenever  he  issued  an  order 
in  certain  quarters,  received  what  was  equivalent  to 
a  slap  in  the  face,  for  his  order  was  absolutely  dis- 
regarded. Furthermore  the  superintendent's  time 
was  being  continually  wasted.  This  situation  resulted 
in  the  formulation  and  enforcement  of  the  following 
rule: 


100          EXECUTIVE  STATISTICAL  CONTROL 

The  executive  must,  whenever  possible,  give  his  orders 
through  his  subordinates. 

Common  sense  must  be  used  in  the  application  of 
this  rule,  as  in  the  application  of  any  other.  The 
method  of  transmitting  orders  can  be  carried  to  an 
absurdity,  of  course,  as  in  the  case  of  the  General 
who  wanted  his  suit  cleaned — the  General  ordered  the 
Colonel  to  order  the  Major  to  order  the  Captain  to 
order  the  Lieutenant  to  order  the  Sergeant  to  order 
the  Corporal  to  order  Private  Atkins  to  clean  the 
General's  suit.  But  the  General  grew  impatient 
before  the  order  reached  Private  Atkins,  and  cleaned 
the  suit  himself.  In  an  emergency  the  executive  must 
give  orders  immediately,  directly  to  whoever  must 
carry  them  out.  But  under  ordinary  circumstances  it 
will  be  more  conducive  to  efficiency  in  the  organiza- 
tion if  the  executive  will  discuss  matters  with  his 
department  assistants,  in  his  own  office,  where  access 
can  be  had  to  all  sorts  of  illuminating  data — and  then 
issue  orders  through  the  assistants.  And  in  order  to 
be  able  to  discuss  affairs  intelligently,  he  should 
mingle  with  his  workmen,  talk  things  over  with  them, 
and  make  notes  concerning  any  conditions  he  thinks 
should  be  changed. 

Facts  Versus  Opinion.  —  The  executive  meetings 
must  not  be  allowed  to  degenerate  into  fruitless  de- 
bates like  those  I  have  already  mentioned.  Subor- 
dinates can  be  trained  with  comparatively  little 
trouble  to  base  their  decisions  upon  fact  rather  than 
upon  personal  opinion  alone.  The  following  case 
illustrates  how  inefficiency  may  result  from  an 
ignorance  of  the  facts.  A  year  or  two  ago  the  secre- 


PERSONAL  EFFICIENCY  101 

tary  of  a  large  cigar-manufacturing  company  showed 
me  through  the  plant.  In  one  room  there  were  about 
two  hundred  girls  stripping  tobacco  leaves — tearing 
out  the  stems  in  order  that  the  rest  of  the  leaves 
might  be  used  for  cigars.  On  one  side  of  this  room 
half  a  dozen  stripping  machines  were  being  operated. 
I  asked  the  secretary  which  was  the  better  method 
of  stripping — the  hand  method  or  the  machine 
method.  "Well,"  he  said,  "I  really  can't  tell  you. 
We  have  discussed  the  question  a  great  many  times 
this  last  year,  and  there  is  a  difference  of  opinion 
among  the  members  of  the  firm."  Twenty  minutes' 
timing  would  have  settled  the  matter — and  yet  the 
firm  members  had  debated  the  question  for  over  a 
year!  If  they  had  known  the  facts,  things  would 
have  been  different.  Given  the  facts,  the  problem 
usually  settles  itself — without  any  necessity  of  re- 
course to  oratory  or  to  acrimonious  expression  of 
opinion.  Discussion  without  facts  is  merely  "the 
rustling  of  the  wind  through  the  dry  reeds,"  and 
seldom  leads  to  decisions  of  any  importance. 

It  is  the  first  duty  of  the  modern  executive  so  to 
marshall  the  facts  that  problems  of  the  corporation 
will,  so  far  as  is  possible,  solve  themselves.  When 
his  assistants — sometimes  composing  a  highly  organ- 
ized statistical  and  industrial  engineering  department 
— have  placed  the  facts  before  him  in  such  shape  that 
he  can  act  upon  them  in  the  best  interests  of  the 
business,  he  is  in  a  position  to  devote  the  greater 
part  of  his  energy  to  translating  them  into  definite 
and  decisive  action. 


CHAPTER  VII 

THE  GRAPHIC  METHOD  OF  PRESENTING 
FACTS 

One-Man  Graphic  Method. — In  the  preceding  six 
chapters  I  have  endeavored  to  show  the  development 
of  the  industrial  world  which  the  executive  rules — 
or  which  rules  him,  as  the  case  may  be — and  the 
necessity  of  basing  decisions  upon  facts.  I  have  ex- 
plained briefly  one  way  of  gathering  these  facts,  and 
have  touched  upon  some  of  the  methods  by  the  use  of 
which  the  executive  may  conserve  his  time  for  a  con- 
sideration of  the  important  problems  of  business  ad- 
ministration. 

Before  proceeding  to  the  examination  of  the  execu- 
tive's method  of  controlling  the  business  by  the  use  of 
facts — in  the  form  of  statistics,  graphic  representa- 
tions of  conditions,  and  so  on — I  wish  to  say  some- 
thing in  regard  to  the  art  of  preparing  graphs  and 
charts.  It  is  not  my  purpose  to  attempt  to  write  a 
treatise  upon  this  very  broad  subject,  which  has  been 
ably  covered  by  Mr.  Brinton.*  Nevertheless  since 
it  is  sometimes  necessary  for  the  executive  to  start 
some  one  off  on  the  work  of  preparing  graphs — and 
since  he  may  sometimes  wish  to  try  his  hand  at  it 
himself  in  odd  moments,  I  believe  that  a  direction  or 
two  may  not  be  out  of  place  here. 


*  Brinton,  W.  C.,  Graphic  Methods  for  Presenting  Facts,  The  En- 
gineering Magazine  Co.,  New  York. 
102 


PRESENTING  FACTS  GRAPHICALLY          103 

The  president  of  a  certain  corporation  capitalized 
at  several  millions — a  man  who  has  done  a  stupendous 
work  of  reorganization,  and  who  has  made  his  com- 
pany a  power  to  be  reckoned  with  in  the  Middle  West 
— found  time  until  recently  to  draw  up  his  own 
graphs,  in  spite  of  his  superhuman  labors.  He 
carried  around  with  him  pencils  of  several  different 
colors  and  some  thin  co-ordinate  paper.  Whenever 
he  analyzed  statements,  reports  and  statistics — in  his 
office,  on  the  train  or  at  his  home — he  put  down  the 
figures  on  the  co-ordinate  paper  if  possible.  Then 
when  he  wanted  to  illustrate  the  recommendations  he 
made  in  any  letter — whether  to  a  superintendent  or 
to  his  board  of  directors — he  crammed  in  two  or  three 
graphs.  As  a  result,  he  got  everything  he  wanted. 
The  facts  argued  the  case  for  him.  Once  the  graph 
was  examined,  no  plea  was  necessary.  Only  one 
course  was  open — the  right  course — and  that  was  fol- 
lowed. The  president's  success  and  his  company's 
success  automatically  followed. 

Under  the  circumstances  his  graphs  were  often 
mussy  and  soiled,  of  course,  but  they  brought  home 
the  facts  with  irresistible  logic.  Now  he  has  a 
scientific  statistical  department  and  his  graphs  are 
all  that  could  be  desired,  but  I  doubt  that  he  enjoys 
them  as  much  as  when  he  was  grubbing  them  out 
himself — putting  his  business  ideals  on  paper,  as  an 
artist  expresses  his  ideals  through  the  medium  of  his 
art. 

Advantages  of  Ruling  Pen. — The  colored  pencil  is  a 
fairly  satisfactory  makeshift  for  the  use  of  the  man 
who  has  to  carry  his  statistical  department  in  his 


104         EXECUTIVE  STATISTICAL  CONTROL 

inside  coat  pocket.  It  is  impossible,  however,  to 
draw  a  fine  line  with  the  usual  colored  pencil.  More- 
over, owing  to  the  difficulty  of  keeping  a  sharp  point 
on  such  pencils,  lines  drawn  with  them  very  often 
break  and  waver,  so  that  it  is  impossible  to  do  a 
neat  job. 

A  ruling-pen  is  a  much  more  satisfactory  instru- 
ment, but  the  novice  is  advised  not  to  attempt  to 
work  anywhere  but  upon  a  stable  surface  with  an 
outfit  of  colored  drawing  inks.  The  most  satisfactory 
type  of  pen  is  that  which  one  can  pull  open  like  a 
jackknife  without  disarranging  the  set  of  the  thumb- 
screw which  regulates  the  width  of  the  line  drawn. 
This  type  of  pen  can  be  cleaned,  or  the  ink  can  be 
changed  in  the  shortest  possible  time,  and  these  points 
are  worth  considering. 

Inasmuch  as  the  width  of  the  line  is  important,  in 
regard  to  both  the  appearance  of  the  finished  graph 
and  the  differentiation  between  various  lines  on  the 
same  sheet,  it  is  important  to  have  some  means  of 
adjusting  the  pen  to  standard  line  widths  at  a 
moment's  notice.  A  pen  with  a  scale  on  the  set  screw 
may  be  used,  or  a  scale  may  be  scratched  on  an 
ordinary  set  screw  (see  Figure  6).  If  you  arrange  the 
scale  yourself,  set  the  screw  first  at  the  widest  line 
the  pen  will  draw  without  spilling  the  ink,  then  at 
the  narrowest,  and  then  divide  up  the  intervening 
space  with  six  or  seven  different  sorts  of  marks. 

Paper  and  Scale. — The  use  of  colored  inks  is  very 
effective  when  several  lines  are  to  be  platted  on  a 
single  sheet.  There  is  the  disadvantage,  however, 
that  usually  only  a  single  copy  can  be  made,  and  it 


PRESENTING  FACTS  GRAPHICALLY 


105 


FIG.   6.      A   GRADUATED   RULING   PEN   AND   CORRESPONDING   LINES 

FOR  THE  GRADUATIONS 

By  marking  such  gi-aduations  on  the  set  screw  of  the  pen,  standard 

widths  of  line  may  be  obtained.    A  good  pen  thus  arranged  can  make 

from  five  to  seven  distinct  widths  of  line.     With  seven  line  widths 

and  seven  types  of  line  as  shown  by  A  to  G,  forty-nine  different  lines 

can  be  drawn  on  one  graph   if  such   an 

occasion  should  arise. 

Is  usually  desirable  to  have  several.  I  would  there- 
fore advise  the  use  of  a  thin  co-ordinate  paper,  from 
which  blue  prints  can  be  made.  Curves  platted  on 
this  kind  of  paper  can  be  continued  on  the  blue- 
prints with  white  ink  until  such  time  as  it  may  seem 
advisable  to  make  another  blueprint.  If  various 
sorts  of  broken  lines  and  lines  of  different  widths  are 
used,  all  the  variety  needed  can  usually  be  obtained, 
as  the  illustration  shows. 


106          EXECUTIVE  STATISTICAL  CONTROL 

The  selection  of  a  paper  adapted  to  the  work  in 
hand  is  always  something  of  a  problem.  Recently 
several  concerns  have  been  getting  out  co-ordinate 
paper  divided  into  twelve  and  fifty-two  sections  re- 
spectively representing  the  months  and  the  weeks  of 
the  year.  The  appearance  of  this  paper  adds  con- 
siderably to  the  neatness  of  the  finished  graph.  Mil- 
limeter paper  with  approximately  ten  squares — 
which  can  be  used  to  represent  cents,  dimes,  dollars, 
tens  or  hundreds — to  the  half-inch,  and  with  fifteen 
such  squares  on  one  margin  and  twenty  on  the  other, 
is  very  satisfactory.  The  ruled  surface  of  such  a 
sheet  is  7y2  by  10  inches,  a  size  which  allows  a  satis- 
factory margin  when  the  sheet  is  bound  with  the 
regular  Sy2  x  11-inch  typewriter  paper.  The  next 
largest  size — with  twenty  squares  on  one  margin  and 
thirty  on  the  other — allows  a  satisfactory  margin  for 
binding  with  the  Sy2  by  11-inch  paper,  if  the  sheet  is 
folded  once. 

On  the  smaller  sheet,  it  is  sometimes  a  distinct 
advantage  to  have  the  three  extra  squares  over  the 
twelve  required  for  the  year,  for  lettering  and  so  on. 
The  larger  sheet  allows  space  for  fifty-two  weeks  if  a 
five-millimeter  space  is  used  for  the  week.  Logarith- 
mic paper  possesses  a  distinct  advantage,  since  on 
it  can  be  shown,  if  desirable,  the  fluctuations  of 
several  factors  which  combine  to  form  a  total,  whose 
fluctuation  it  is  also  sometimes  well  to  show.  An 
attempt  to  represent  on  ordinary  paper  conditions  of 
that  sort  would  result  in  congestion  among  the  factors, 
and  a  large  section  of  blank  paper  between  them  and 
the  total — even  if  the  total  can  be  shown  on  the  same 


PRESENTING  FACTS  GRAPHICALLY          107 

sheet  without  interrupting  the  continuity  of  the  scale. 
The  use  of  logarithmic  paper  makes  it  possible  to 
take  care  of  the  occasional  " freak"  peak  which  is 
always  disturbing  the  artist  by  running  completely 
out  of  the  picture  at  the  top  of  the  scale.  Compare 
the  same  data  platted  on  the  ordinary  co-ordinate 
paper  and  on  logarithmic  paper  in  Figure  7. 

It  is  important  to  represent  the  whole  scale  from 
zero  to  the  highest  point  reached,  because  by  doing  so 
conditions  can  be  shown  in  such  a  manner  as  to  be 
more  easily  read  in  terms  of  percentages.  Thus,  if 
figures  running  from  fifty  to  sixty  cents  are  shown 
on  a  scale  that  starts  at  zero,  they  will  call  up  a 
much  more  accurate  mental  picture  of  their  relation 
to  one  another  than  if  they  were  shown  on  a  scale 
running  from  50  to  100. 

Graphs  Show  Relative  Values. — One  of  the  most 
important  function's  of  graphs  is  to  show  matters  in 
their  true  relative  importance,  and  it  is  essential  to 
have  a  man  draw  them  up  who  has  a  clear  idea  of  the 
relative  importance  of  the  factors  and  operations  in 
the  business.  An  artist  who  paints  a  picture  or  a 
sculptor  who  models  a  statue  does  not  endeavor  to 
show  the  subject  exactly  as  it  is.  Ask  either  one 
what  he  thinks  of  photographic  art  and  you  will  get 
the  whole  story.  The  artist  doesn't  accentuate  the 
freckle  on  your  nose,  unless  that  freckle  is  important 
to  the  expression  of  your  personality  as  he  interprets 
it.  He  studies  you  and  endeavors  to  portray  the  real 
"you."  If  he  is  a  true  artist,  he  will  make  your  true 
character  and  personality  stand  forth  from  the  can- 
vas as  the  character  of  Washington  stands  forth  from 


108 


EXECUTIVE  STATISTICAL  CONTROL 


ABCDEFGH 


10 


ABCDEFGH 


PIG.   7.      IDENTICAL   DATA   PLOTTED   ON    ARITHLOG   PAPER   AND 

ORDINARY   COORDINATE   PAPER 

Note  the  greater  clarity  of  the  two  lower  curves  in  the  first  case,  also 
the  fact  that  less  room  is  required  for  the  upper-curve. 

the  Stuart  portrait,  or  the  personality  of  Victor  Hugo 
from  the  statue  by  Kodin.  This  does  not  mean  that 
art  must  lie.  It  means  that  art  must  be  truer  than 
any  mere  mechanical  representation  of  the  obvious. 


PRESENTING  FACTS  GRAPHICALLY          109 

The  camera  is  accurate  as  to  externals.  But  the  true 
work  of  art  is  to  portray  accurately  not  only  ex- 
ternals but  the  subject's  true  personality,  through  the 
instrumentality  of  the  artist's  experience,  technique, 
intuition,  and  ability  to  analyze  the  soul  of  the  sub- 
ject. 

The  case  of  the  graph  is  similar.  The  bookkeeper 
shows  the  losses  in  red,  the  color  of  danger.  The 
statistician  draws  the  curves  that  portray  undesirable 
conditions  or  items — such  as  losses  during  production 
— in  red,  to  indicate  their  menace  to  the  business. 
But  he  must  do  even  more  than  this.  He  must  show 
figures  whose  fluctuation  spells  disaster — such  as 
those  dealing  with  output  and  labor  available — to  a 
scale  which  will  accentuate  every  fluctuation.  He 
must  make  the  instability  appear  frightful — as  it 
actually  is  to  any  one  who  knows  the  effect  of 
violent  fluctuation  in  certain  vital  factors  of  industry. 
Even  though  a  drug  may  be  fatal  only  if  taken  in 
extreme  doses,  the  druggist  marks  it  "poison"  and 
emblazons  the  label  with  the  skull  and  cross-bones. 
He  knows  that  nine  times  out  of  ten  the  dose  that  a 
person  would  ordinarily  take,  would  not  prove  fatal, 
but  he  marks  the  drug  "death"  nevertheless,  because 
he  wishes  any  one  who  is  going  to  make  a  mistake 
to  err  on  the  safe  side.  Similarly,  it  is  an  axiom  that 
the  conscientious  industrial  engineer,  or  the  executive 
who  wants  to  keep  himself  unfailingly  on  the  right 
track,  will  arrange  his  graphs  so  that  they  will  ex- 
aggerate dangerous  tendencies  that  must  be  avoided 
if  the  business  is  to  be  run  with  the  maximum 
effectiveness. 


110         EXECUTIVE  STATISTICAL  CONTROL 

Men  Who  Make  the  Graphs. — As  its  corrolary  this 
axiom  carries  the  rule:  "Statistics  and  graphs 
should  be  planned  by  men  who  have  analyzed  the 
business  from  the  stage  of  the  arrival  of  the  raw 
material  to  the  stage  of  the  shipment  of  the  finished 
product — who  know,  through  actual  contact  with  the 
working  problems  of  every  department,  its  tendencies 
and  the  causes  which  underlie  its  effects."  Even 
the  lowliest  bookkeeper  on  the  tallest  stool  in  the 
darkest  corner  of  the  office  cannot  perform  his  duties 
properly  if  the  entries  he  is  making  are  nothing  but 
names  to  him.  He  must  visit  the  factory,  he  must 
see  the  finished  product,  and  make  every  word  he 
writes  vital,  if  he  is  to  perform  his  duties  efficiently. 
Some  of  the  worst  errors  I  have  ever  found  in  cost 
statements  were  due  to  the  clerks'  ignorance  of  con- 
ditions in  the  factories.  Errors  that  the  most 
ignorant  "hunky"  at  the  works  would  have  scorned 
to  make  were  perpetuated  by  supposedly  trained  ac- 
countants, simply  because  what  they  were  writing 
down  meant  nothing  to  them  but  words,  words, 
words ! 

Expert  accountants  will  make  the  same  sort  of 
foolish  errors  in  devising  cost  methods.  A  firm  of 
accountants  of  excellent  standing  in  recommending 
a  system  not  long  ago  to  a  great  association  of  manu- 
facturers, solemnly  asserted  that  it  was  unnecessary  to 
tally  the  output  of  a  certain  department  if  the  losses 
were  counted,  since  the  subtraction  of  the  losses  from 
the  output  of  a  previous  department  would  give  the 
number  of  good  pieces  with  accuracy.  From  the  ac- 
counting standpoint  such  a  procedure  seemed  efficient. 


PRESENTING  FACTS  GRAPHICALLY          111 

From  an  operating  standpoint  such  a  procedure  was 
unreliable,  unsafe,  and  immoral.  Tally,  in  this  par- 
ticular case,  was  made  by  the  very  men  who  would 
be  disciplined  if  losses  were  unduly  large;  such  a 
system  simply  begged  them  to  lie  to  the  firm.  One 
firm,  which  is  audited  annually  by  the  best  known 
firm  of  expert  accountants  in  the  country,  discovered 
a  loss  that  had  been  going  on  for  years  in  one  de- 
partment— amounting  to  over  $13,000 — simply  be- 
cause the  same  men  who  were  responsible  for  the 
loss  did  the  tallying.  They  didn't  want  to  hang 
themselves  by  reporting  their  own  crimes.  Costs, 
statistics  and  graphs,  if  they  are  to  perform  their 
true  function  in  the  administration  of  the  business, 
must  be  devised  by  those  who  are  familiar  with  the 
business  and  with  the  problems  which  confront  its 
executives,  from  the  lowest  to  the  highest. 

The  men  who  keep  up  the  work,  once  it  has  been 
intelligently  planned,  should  be  made  conversant  with 
the  tangible  physical  actualities.  Then,  too,  every 
business  is  continually  in  need  of  new  blood  if  it  is 
expanding.  And  if  it  is  stagnating,  the  need  is 
doubly  pressing.  If  cost  clerks,  bookkeepers  and 
statisticians  are  carefully  selected  for  their  potential 
skill,  and  then  are  brought  into  direct  contact  with 
the  processes  and  with  the  product  through  regular 
trips  to  the  factory,  the  company  is  furnished  with  a 
continuous  and  inexhaustible  supply  of  the  kind  of 
material  out  of  which  executives  and  salesmen  are 
made.  Men  so  trained  are  not  only  of  greater  value 
while  they  remain  in  the  accounting  department,  but 
they  also  prove  more  valuable  as  superintendents  and 


112          EXECUTIVE  STATISTICAL  CONTROL 

salesmen  because  of  their  knowledge  of  the  under- 
lying facts  of  the  business,  and  because  of  the  op- 
portunity which  they  have  had  to  observe  from  day 
to  day,  in  the  figures  with  which  they  are  dealing, 
the  effect  upon  the  business  of  the  various  current 
conditions  and  circumstances. 

Once  the  instruments  of  expression  have  been 
chosen — the  tools,  the  inks  and  the  co-ordinate  paper 
- — it  is  necessary  to  plan  the  particular  graph  which 
is  to  picture  conditions  for  the  executive's  benefit. 
In  doing  this,  the  statistician  must  not  regard  himself 
merely  as  a  recorder  of  facts,  or  even  as  an  artist 
who  is  to  portray  the  soul  of  the  business.  He  must 
go  still  further,  and  look  upon  himself  as  an  im- 
portant agent  in  the  shaping  of  the  company's  policy. 
Cardinal  Eichelieu,  the  real  ruler  of  France  for 
years,  did  not  issue  orders  to  the  people  of  France. 
He  placed  the  facts  before  Louis  XIII  in  such  a  way 
that  the  latter,  in  each  instance,  could  do  only  one 
thing.  As  a  result,  the  rule  of  the  Grande  Monarque 
was  the  most  brilliant  in  the  history  of  the  country. 

It  may  not  be  possible,  or  even  desirable,  for  the 
statistician  to  rule  the -business  through  the  general 
manager,  but  it  is  desirable  that  he  realize  his  re- 
sponsibility and  his  power  for  good  or  evil  since  upon 
both  the  facts  and  the  method  of  presentation  that 
he  selects  depend,  to  a  great  extent,  the  decisions  of 
the  executives  who  control  the  destinies  of  the  busi- 
ness. The  statistician  therefore  not  only  should  be  a 
man  of  the  highest  integrity,  but  should  realize  his  re- 
sponsibility and  prepare  himself  accordingly.  Upon 
his  action — upon  whether  he  is  a  Rasputin  or  a 


FIG.  8.  SHOWING  DANGER  OP  GIVING  MERE  DETAILS  UNDUE 
PROMINENCE  IF  CARE  IS  NOT  EXERCISED  TO  ARRANGE  CHARTS 
TO  ACCENTUATE  MATTERS  IN  THE  ORDER  OF  THEIR  IMPORTANCE. 

113 


114         EXECUTIVE  STATISTICAL  CONTROL 

Richelieu — will  perhaps  hang  the  destiny  both  of  his 
master  and  of  his  empire. 

The  Control  Curves. — The  reductio  ad  absurdum  is 
sometimes  a  very  effective  method  of  presenting  the 
facts  either  to  facilitate  an  executive  decision  or  to 
illustrate  a  point  under  discussion.  The  accompany- 
ing graph,  Figure  8,  brings  out  the  point  emphasized 
in  the  preceding  paragraph.  Suppose  a  statistician 
were  fool  enough  to  present  the  facts  concerning 
stable  expense  and  the  facts  regarding  output  upon 
the  same  sheet — and  suppose  the  executive  were  idiot 
enough  to  accept  the  graphic  picture  at  its  face  value. 
Under  such  circumstances  the  violent  fluctuations  in 
the  upper  graph  would  seem  most  alarming.  On  the 
other  hand,  the  mild  and  gentle  drop  in  the  output 
curve  would  seem  to  be  no  cause  for  uneasiness. 
Consequently,  the  executive  would  be  moved  to  rush 
forth  and  conduct  a  searching  investigation  of  stable 
affairs.  While  he  was  doing  this — say  in  June — the 
output  would  have  dropped  25  per  cent  since  the  first 
of  the  year,  without  attracting  his  attention.  A  drop 
of  25  per  cent  in  the  output  is  often  enough  to  drive 
a  concern  into  bankruptcy,  while  thirty  or  forty  dol- 
lars a  month  more  or  less  spent  in  the  stable  is  of 
comparatively  little  consequence.  In  view  of  the  con- 
ditions, the  statistician's  statement  of  the  case  shows 
about  as  good  judgment  as  that  displayed  by  the 
small  boy  who  rushed  up  excitedly  to  tell  the  farmer 
that  there  was  a  fly  on  his  nose,  when  his  shirt-tail 
was  on  fire.  Both  facts  were  interesting,  but  it  was 
of  considerable  importance  to  the  farmer  to  which 
affair  he  gave  his  first  attention. 


20.00 

\ 

/ 

\ 

/ 

\ 

/ 

\ 

/ 

15.00 

\ 

/ 

\ 

/ 

Tofa 

f  La 
per 

<3or 
Ton 

~osf 

\ 

/ 

oc 

5  10.00 
o 
0     9.00 

eoo 

7.00 
€00 

S.OO 
400 
3.00 
2.00 
1.00 
0 

Cos 

f  De 

at.    , 

4 

!\ 

/ 

Cos 

/  D 

iff. 

B 

\ 

/ 

Cos/ 

Pepi 

'   C 

\ 

1 

\ 

/ 

\ 

\ 

/ 

\ 

1 

z      c6     d     d.      >      : 

u        >•                  h~ 

_i     o     h.     t-     >     u 

3        O       3       U       O       O       U 

•3     ->    <     t/5     o     r     o 

->       U       2       <       S       - 

FIG.   9.      SHOWING    CUMULATIVE    EFFECT    OF    DEPARTMENTAL 

COSTS    UPON    THE    TOTAL    COST. 

115 


116          EXECUTIVE  STATISTICAL  CONTROL 

Experts  will  tell  you  that  only  one  or  two  curves 
should  be  shown  on  one  sheet  of  co-ordinate  paper, 
since  otherwise  there  is  likely  to  be  confusion.  While 
this  is  generally  true,  nevertheless  there  are  advan- 
tages to  be  gained  in  certain  cases  from  having  all 
the  information  in  regard  to  a  certain  subject  placed 
before  the  executive  at  the  same  time.  Note,  for  in- 
stance, representations  of  unit  costs  in  Figure  9.  The 
important  matter  is  the  total  cost  of  production.  The 
curve  for  this  may  be  placed  at  the  top  of  the  sheet 
— as  shown  in  the  illustration,  which  presupposes  that 
the  labor  cost  of  a  product  processed  in  three  de- 
partment, A,  B,  and  C,  is  made  up  of  the  labor  cost 
in  these  three  departments.  In  both  April  and  May 
there  is  a  violent  drop  in  the  total  labor  costs.  "With 
the  three  factors  shown  on  one  sheet,  a  glance  down 
the  April  line  shows  that  the  drop  in  the  cost  total 
was  due  entirely  to  a  drop  in  the  costs  in  Depart- 
ment C,  and  that  the  costs  in  Departments  A  and  B 
remained  stationary.  The  executive  therefore  con- 
centrates on  Department  C — to  find  out  the  cause,  in 
order  to  make  that  unusually  low  cost  in  April  a 
regular  occurrence  if  possible. 

In  July  there  is  a  drop  of  $4  in  the  total  cost.  The 
question,  of  course,  is  again:  In  which  department 
were  costs  low?  The  graph  arranged  as  illustrated 
answers  the  question  at  once — they  were  low  in  all 
three  departments,  but  principally  in  C.  The  execu- 
tive, then,  is  at  once  directed  to  the  proper  places  for 
investigation.  If  it  had  been  necessary  to  search 
around  on  a  lot  of  sheets,  considerable  time  would 
have  been  lost  and  no  little  figuring  might  have  been 


PRESENTING  FACTS  GRAPHICALLY          117 

necessary  before  the  relative  drop  in  different  depart- 
ments could  have  been  ascertained.  Or  worse  still, 
the  figuring  might  not  have  been  done  at  all,  and  our 
executive  might  have  attended  to  the  "fly"  instead  of 
to  the  "fire." 

It  is  desirable  to  draw  the  curves,  when  possible, 
in  such  a  way  that  when  the  major,  or  control,  curves 
sink,  the  cause  of  the  sinking  may  be  located  at  once 
by  direct  reference  to  the  minor  curves,  and  when  the 
control  curves  rise  the  cause  may  be  forced  upon  the 
executive's  attention.  There  is  a  famous  socialistic 
picture  that  represents  Society  dancing  upon  a  ball- 
room floor  which  is  held  up  by  the  sweating  backs  of 
toilers — the  toilers  who  produce  the  wealth  which 
makes  the  music  and  champagne  possible.  In  the 
center  of  the  picture,  a  group  of  social  butterflies  re- 
gard with  terror  the  chaos  and  horrror  revealed  below 
through  a  hole  burst  in  the  polished  floor  by  the 
naked  fist  a  toiler  has  driven  upward  in  agony.  Just 
so  should  the  control  curves  be  arranged  to  burst 
upward  when  conditions  below  threaten  disaster. 
The  dangerous  rise  in  the  cost  of  one  factor  must  be 
reflected  in  the  control  curves  which  must  rise  in 
proportion  to  the  danger.  Similarly,  the  sum  of  a 
number  of  small  rises  in  the  minor  curves,  reflecting 
a  general  condition  throughout  the  business,  must  be 
shown  by  the  control  curve  with  sufficient  distinct- 
ness to  indicate  the  prevalence  of  a  condition  that 
needs  the  executive's  attention. 

Graphs  and  the  "Exception  Principle." — This 
brings  us  to  the  application  of  the  "exception  prin- 
ciple" to  the  arrangement  of  graphs.  Thus: 


118         EXECUTIVE  STATISTICAL  CONTROL 

Each  morning  the  executive  would  have  placed  be- 
fore him  a  single  graph,  a  sort  of  super-control  or 
barometric  graph,  which  would  reflect  the  exact  con- 
dition of  the  business  up  to  and  including  the  day 
previous. 

If  conditions  as  reflected  by  this  barometric  graph 
were  satisfactory,  the  executive  might  safely  turn 
his  mind  to  the  consideration  of  concrete  problems  of 
various  sorts — such  as  the  betterment  of  technical 
processes,  the  planning  of  new  sales  campaigns,  or 
the  improvement  of  his  golf  game  by  a  trip  to  the 
links. 

If  conditions  so  reflected  were  unsatisfactory,  he 
would  turn  to  the  next  graph,  which  would  show  him 
what  department  was  responsible  for  the  fall  of  the 
barometer.  Judging  from  the  information  he  gained, 
he  might  conclude  that  all  was  well  except  in  that  de- 
partment. 

A  third  sheet  would  show  the  detail  of  the  offend- 
ing department  so  that  the  executive  could  put  his 
finger,  as  it  were,  upon  the  exact  spot  which  was  ail- 
ing, and  then  concentrate  upon  the  remedy  for  the 
ailment. 

Such  a  plan,  if  it  can  be  realized — and  it  very  often 
can,  in  principle  at  least — produces  the  maximum 
effect  with  the  least  possible  demand  upon  the  time 
and  energy  of  the  executive.  This  system  sorts  out 
automatically  matters  that  are  going  satisfactorily, 
and  directs  the  attention  of  the  management  to  those 
that  are  not,  if  any.  The  chief  knows  every  morning 
that  everything  is  all  right,  or  that  everything  is  all 
right  except — whatever  the  series  of  graphs  focuses 


PRESENTING  FACTS  GRAPHICALL  119 

his  attention  upon.  As  a  result,  he  can  work — not 
worry — knowing  that  everything  will  have  his  atten- 
tion which  requires  it,  and  that  he  is  free  to  concen- 
trate upon  the  business  marked  "next"  on  his 
schedule.  The  reduction  of  the  essence  of  the  busi- 
ness to  one  curve,  or  even  to  a  single  graph,  requires 
a  detailed  analysis  of  the  business  over  a  considerable 
period — a  matter  which  will  be  taken  up  later. 

One  of  the  greatest  advantages  of  this  method  of 
judging  each  morning  the  state  of  the  business,  is  the 
increased  fairness  it  renders  possible  in  the  handling 
of  assistants.  Altogether,  at  different  times  I  sup- 
pose I  have  had  the  following  remark  made  to  me  by 
twenty-five  or  thirty  factory  superintendents:  "We 
always  have  a  breakdown  when  we  have  visitors. 
I  never  knew  it  to  fail."  As  a  superintendent  my- 
self, I  always  drew  a  breath  of  relief  when  the 
general  manager  had  made  the  rounds  and  no  unusual 
accident  had  occurred.  When  the  old  i*ethods  of 
forming  judgments  were  used,  the  general  manager's 
opinion  of  his  subordinates  was  very  often  a  matter 
of  luck.  Accidents  always  do  happen  when  the  boss 
is  around,  and  if  you  are  unlucky  you  may  be  "in 
bad"  to  a  hopeless  extent,  while  some  more  fortunate 
chap,  the  sum  total  of  whose  accidents  and  ineffi- 
ciencies are  three  times  yours,  may,  through  luck, 
gain  the  reputation  of  being  your  superior  as  an 
executive.  Injustices  of  this  sort  are  bound  to  occur 
when  the  boss  forms  his  judgment  of  departmental 
efficiency  as  a  result  of  periodical  raids,  made  with 
the  idea  of  *  *  catching  the  men  at  something. ' '  Under 
such  a  system  the  management  wastes  its  time  and 


120         EXECUTIVE  STATISTICAL  CONTROL 

reaches  false  conclusions.  On  the  other  hand,  a 
system  that  gives  an  executive  promptly  a  knowledge 
of  facts  automatically  presented  increases  the  effi- 
ciency both  of  the  executive  and  of  the  organization. 
Some  Special  Details. — The  mere  laying  out  of 
curves  on  paper  is  of  relatively  little  importance  and 
requires  little  thought  as  compared  with  the  observ- 
ance of  the  principles  I  have  stated.  At  the  same 
time,  a  few  more  details  on  the  subject  may  prove  of 
assistance.  Having  secured  the  proper  instruments 
and  selected  the  general  type  of  paper,  or  the  sort  of 
card,  most  suitable,  you  next  have  to  assemble  your 
figures.  The  first  thing,  of  course,  is  to  determine 
the  maximum  and  the  minimum  figures  to  be  pre- 
sented— the  extremes  which  have  occurred  in  the  past. 
A  knowledge  of  the  business  makes  it  possible  to 
estimate,  from  these  figures,  whether  the  extreni( 
will  be  likely  to  remain  what  they  have  been  in  th( 
past,  or  whether  new  extremes  will  be  establish 
in  the  future. 

When  you  have  determined  safe  limits,  you  mus 
select   the   scale.    If  you   use   the   millimeter   papei 
described — which  has  a  very  heavy  ruling  every  half- 
inch  and  a  medium  heavy  line  every  quarter-inch- 
it  will  be  fairly  easy  to  plan  the  graph,  provided  yoi 
do  net  try  to  put  too  many  curves  on  one  sheet.     Th< 
full   fifteen-inch   side   with   its   thirty   squares,   eacl 
divided  into  ten  parts,  will  take  from  .00  to  $3.00  ii 
each  square  represents  one  cent,  from  0  to  $30  if  eacl 
one  represents  10  cents,  and  so  on.     Where  you  ai 
dealing  with  millions,  dimes  are  not  important.    Bi 
it  is  important  not  to  try  to   represent  dimes   ai 


PRESENTING  FACTS  GRAPHICALLY          121 

millions  with  the  same  curve,  as  you  will  soon  find 
if  you  are  foolish  enough  to  try.  (See  footnote.) 

It  is  advisable  to  use  only  decimal  units  when 
possible.  If  each  millimeter  represents  a  dollar,  it  is 
easy  to  extend  and  to  read  the  curves.  In  case  of 
emergency  each  millimeter  may  be  made  to  represent 
a  factor  of  ten — that  is,  2  or  5.  If  you  plat  a  curve 
with  three  units  to  a  millimeter,  you  will  regret  it. 

You  should  avoid,  if  possible,  using  two  scales  for 
the  same  sort  of  units  on  the  same  sheet,  since  the 
impression  made  by  a  large  rise  in  a  curve  is  likely 
to  be  the  same,  irrespective  of  the  fact  that  one  scale 
represents  dollars  and  the  other  dimes.  The  dollar 
curve  should  speak  ten  times  as  loud  as  the  dime 
curve,  if  the  correct  impression  is  to  be  conveyed  to 
the  mind  of  the  reader. 

It  is  about  as  futile  to  direct  the  novice  in  great 
detail  concerning  the  exact  methods  of  preparing 
graphs  as  it  is  to  try  to  teach  a  would-be  artist  every 
move  to  make  with  his  crayon  or  brush.  It  is  much 
better  simply  to  explain  the  principles  of  the  equip- 
ment, and  then  tell  him  to  "go  to  it."  Technique 
can  be  acquired  only  by  practice.  But  the  broader 
the  statistician's  knowledge  of  the  laws  underlying 
the  business,  the  more  eeffctive  his  work.  The  execu- 
tive should  select  his  statistician  with  care,  for  upon 
the  latter 's  interpretation  of  the  facts  depends  the 
future  of  the  empire  of  business. 


NOTE: — The  reader  will  understand  that  the  paper  described  by 
Mr.  Farnham  is  readily  obtainable  and  is  ruled  according  to  his 
description.  The  illustrations  in  this  book,  however,  while  originally 
drawn  on  such  paper,  have  been  redrawn  with  fewer  cross-rulings  and 
to  a  smaller  scale  for  reproduction  purposes. — Editor. 


CHAPTER  VIII 
THE  ANALYSIS  OF  THE  BUSINESS 

First  Phase— Bird' s-Eye  View.— Whether  the 
executive  at  first  elects  himself  statistician,  or  whether 
he  appoints  one  of  his  assistants  to  the  position, 
it  is  necessary  that  he  understand  the  method  of 
procedure. 

The  first  step  is  to  make  a  survey  of  the  business, 
and  this  survey  should  be  divided  into  two  parts. 
The  first  part  should  be  what  used  to  be  called,  before 
the  days  of  the  aeroplane  mapping  cameras,  a 
"bird's-eye  view."  The  best  time  for  the  executive 
to  make  the  survey  is  after  a  two-weeks'  vacation, 
during  which  time  he  has  resolutely  put  the  business 
out  of  his  mind.  If  he  cannot  take  a  vacation,  he 
must  find  some  other  method  of  prying  his  nose 
away  from  the  grindstone  and  thus  insuring  a  proper 
perspective.  The  perspective,  in  any  case,  is  abso- 
lutely necessary.  If  no  other  means  of  obtaining  it  is 
at  hand,  a  cold  blooded  examination  of  the  reasons 
why  he  is  paid  his  salary  may  suffice. 

Once  he  has  reached  the  true  conclusions  he  may 
put  the  principal  factors  on  paper  somewhat  in  the 
following  order: 

I.  Dividends. — It   goes   without   saying   that   divi- 
dends— large,  regular  and  frequent — are   the  reason 
for  the  existence  of  any  business,  since  it  is  the  hope 
122 


ANALYSIS  OF  THE  BUSINESS  123 

of  an  adequate  return  upon  their  money  which  in- 
duces the  stockholders  to  invest  their  capital  in  the 
first  place.  Dividends  are  directly  dependent  upon 
earnings,  so  that  the  first  leaf  in  the  "  Bible "  of  the 
executive  should  show  graphically  the  fluctuations  in 
earnings  over  the  period  of  the  concern's  existence. 

II.  Profits. — Since  profits  consist  in  the  difference 
between   the   selling   price   and   the   cost   price,   the 
second  section  should  show  by  means  of  curves  the 
average  monthly  selling  price  per  unit  of  the  major 
products  as  compared  with  their  total  "cost  sold." 
The   space   between   these   two   curves   at   all   times 
represents  the  profit.    Low  profits  may  be  due  either 
to  a  low  selling  price  or  to  a  high  manufacturing 
cost.    By  watching  the  fluctuations  in  the  two  curves 
the   executive  can  at  once  determine  which   of  the 
two  halves   of  his  organization  needs   his   attention 
and  assistance,  and  he  can  throw  his  strength  behind 
the  weakest  point. 

III.  Sales. — Graphs  showing  the  total  quantity  of 
sales,  and  the  distribution  of  quantities  by  districts 
and  subdistricts,   show  the  executive  and  the  sales 
manager  just  how  well  each  portion  of  their  organiza- 
tion is  doing  as  compared  with  how  it  has  done  in  the 
past,  and  just  which  portions  of  the  territory  need 
attention.    The  prices  obtained  in  each  section  of  the 
country  are  averaged  each  month,  and  the  data  is  so 
presented  that  every  effort  may  be  intelligently  and 
consistently  made  to  hold  prices  to  a  maximum.    In  a 
similar  manner  sales  expense  is  kept  track  of,  and 
subdivided  as  common  sense  suggests. 


124         EXECUTIVE  STATISTICAL  CONTROL 

In  concerns  that  have  applied  the  principles  of 
scientific  management  to  their  sales  department — 
rewarding  their  salesmen  and  salesmanagers  exactly 
in  proportion  to  what  they  accomplish  in  the  matter 
of  quantity  sold,  price  obtained,  and  expense  saved — 
the  "efficiency,"  or  percentage  of  attainment,  of  the 
standard  set  on  these  points  in  each  territory  is 
platted  so  that  the  eecutive  may  see  at  a  glance  just 
what  is  being  accomplished  in  each  territory  in  pro- 
portion to  what  careful  analysis  of  local  conditions  in 
each  district  has  determined  should  be  accomplished. 
This  standardization  simplifies  the  work  of  the  execu- 
tive considerably,  since  the  results  obtained  from  the 
application  of  scientific  management  to  the  factory— 
which  increases  the  employees'  interest  in  their  work, 
fosters  team  play  and  so  on — render  less  essential  the 
supervision  of  the  chief  executive.  Moreover,  the 
percentage  system  of  recording  results  boils  down  all 
results  to  a  common  denominator,  so  that  the  mini- 
mum of  time  is  required  for  him  to  grasp  the  exact 
state  of  affairs. 

IV.  Manufacturing  Costs. — After  making  an  ex- 
amination, should  the  sales  graph  show  that  low 
profits  during  a  given  period  were  in  no  way  attribu- 
table to  avoidable  faults  in  the  sales  department,  the 
executive  would  naturally  next  turn  his  attention  to 
the  manufacturing  department.  While  it  is  not  my 
purpose  to  indicate  in  detail  at  this  time  how  a  com- 
plete cost  system  may  be  reproduced  graphically, 
nevertheless  I  wish  to  call  attention  to  the  following 
principal  questions  which  the  executive  probably  would 
be  prompted  to  ask:  (a)  Was  the  total  cost  of  manu- 


ANALYSIS  OF  THE  BUSINESS  125 

facture  high  or  low  as  compared  (1)  with  past  costs? 
(2)  with  the  standard  costs?  (b)  Was  the  output 
unusually  high  or  unusually  low?  (c)  For  how  much 
of  the  variation  in  costs  was  the  output  responsible? 
(d)  Was  a  period  of  low  output  followed  by  merely 
a  rise  in  the  indirect  labor,  supervision,  rent,  general 
expense  and  various  other  sorts  of  overhead,  or  did 
it  extend  to  the  direct  labor,  showing  that  men  were 
kept  on  unnecessarily  in  slack  times  by  foremen  "just 
to  be  good  fellows"?  (The  answers  to  these  ques- 
tions would  at  once  determine  the  executive's  course 
of  action.)  (f)  Was  the  variation  in  cost  due  to 
labor  or  material? 

With  such  questions  as  these  answered — in  fact 
with  the  answers  so  arranged  in  advance  that  they 
strike  the  executive  forcibly,  unavoidably,  relent- 
lessly, and  regularly  every  month — either  the  execu- 
tive takes  the  necessary  action,  or  he  cannot  avoid 
admitting  even  to  himself,  that  he  is  entirely  in- 
competent. 

V.  Material  Costs. — An  increase  in  the  cost  of  raw 
material  often  carries  the  rise  in  costs  outside  the 
executive's  control.  Nevertheless  he  should  know 
exactly  to  what  extent  this  rise  affects  his  cost  of 
production.  Such  knowledge  drives  him  either  to 
raise  the  selling  price — and  for  a  legitimate  reason — 
or  to  attack  with  renewed  vigor  some  department 
which  seems  capable  of  reducing  its  operating  costs 
sufficiently  to  offset  the  increased  material  costs.  .In 
other  words  he  is  driven  to  make  an  extraordinary 
effort  to  meet  the  changed  condition,  by  a  knowledge 
of  its  exact  seriousness;  and  his  stockholders  can  rest 


126          EXECUTIVE  STATISTICAL  CONTROL 

assured  that  everything  possible  will  be  done  to  safe- 
guard their  interests. 

Second  Phase— Handling  Details.— Having  selected 
the  essentials  of  the  business  and  arranged  them  in 
order  under  main  captions  similar  to  those  just  cited, 
and  having  decided  just  what  it  will  mean  to  the 
business  and  to  himself  if  he  keeps  such  essentials 
always  before  him,  the  executive  is  ready  for  the 
second  phase  of  his  analysis. 

This  phase  deals  with  the  matter  more  in  detail, 
but  in  so  far  as  possible  loss  of  perspective  is  avoided 
by  emphasis  being  placed  upon  the  details  under  con- 
sideration in  proportion  to  their  relative  importance. 
To  illustrate,  I  shall  cite  the  case  of  a  small  sewer- 
pipe  plant,  employing  about  a  hundred  men,  in  which 
it  was  desired  to  concentrate  the  superintendent's 
attention  upon  each  phase  of  manufacture,  exactly  in 
the  order  of  that  operation's  importance  to  the  stock- 
holders as  a  producer  of  dividends. 

The  costs,  as  shown  by  the  simple  cost  system 
which  existed,  were  arranged  as  shown  in  the  ac- 
companying table  of  cost  of  labor  and  material  in  a 
sewer  pipe  factory. 

The  superintendent  who  concentrated  upon  the 
hauling  of  coal  and  ashes  and  saved  5  per  cent  of  the 
expense,  would  save  the  stockholders  $2.25  per  month 
on  a  1,200-ton  production.  If  he  devoted  his  attention 
to  saving  5  per  cent  of  the  expenditure  for  coal  used 
at  the  kilns,  he  would  increase  their  dividends  by  $60 
a  month,  or  $720  a  year.  This  method  of  analysis 
directs  the  executive's  attention  to  every  phase  of  the 
business  and  insures  his  attention  being  devoted  to 


ANALYSIS  OF  THE  BUSINESS 


127 


MONTHLY   COST   OF   LABOR   AND    MATERIAL   IN   A  SEWER-PIPE 
FACTORY. 

Relative 
Per- 

Cost  centuge 

per  ton.  of 


Operation. 


total. 


impor- 
tance of 
opera- 


tions. 


WAGES. 

Moving  clay-cars  to  dry  pans $0.03  0.8  12 

Grinding— dry  pans 0.06  1.6  9 

Mixing— wet  pans 0.05  1.3  10 

Making — press  crew 0.34  9.0  4 

Finishing      and       drying — floor 

crew    0.12  3.2  7 

Setting— floor  to  kiln 0.25  6.6  5 

Burning — burners  and  firemen. .   0.20  5.4  6 
Hauling  coal  and  ash — carts  and 

horses   0.03  0.8  12 

Kiln  cleaning — cleaning 0.02  0.5  13 

Drawing — kiln  to  yard  or  cars.  .   0.25  6.7  5 

General  labor — miscellaneous....  0.10  2.7  8 

Repairs  to  buildings 0.03  0.8  12 

Repairs  to  mach'y  and  equip 't..  0.07  1.9  9 

Repairs  to  kilns 0.04  1.1  11 

Repairs  to  tools 0.01  0.3  14 

Superintendence    0.12  3.2  7 

Total  labor $1.72  45.9 

SUPPLIES. 

Repairs  to  buildings $0.04  1.1  11 

Repairs  to  mach'y  and  equip 't. .  0.05  1.3  10 

Repairs  to  kilns 0.10  2.7  8 

Repairs  to  tools 0.01  0.3  14 

Miscellaneous  supplies 0.07  1.9  9 

Stable— labor  and  supplies 0.05  1.3  10 

Clay— cost  at   storage 0.50  13.4  2 

Kiln  coal — cost  in  bunkers 0.80  21.4  1 

Steam    power — labor,    coal    and 

supplies 0.40  10.7 3_ 

Total  supplies 2.02  54.1 

Total  Labor  and  Supplies . . .  3.74  100.0 


128          EXECUTIVE  STATISTICAL  CONTROL 

each  factor  in  the  exact  order  of  that  factor's  im- 
portance. 

The  same  method  should  be  used  by  the  executive 
in  conducting  the  survey  of  any  business,  whatever 
its  size  may  be.  It  should  be  remembered  that  the 
purpose  in  introducing  any  innovation,  large  or  small, 
is  to  add  to  the  ultimate  earning  power  of  the 
business.  Furthermore,  it  should  always  be  kept  in 
mind  that  the  executive  exists  to  maintain  and  to  in- 
crease the  earning  power  of  the  stockholders'  capital. 
He  must  therefore  survey  the  business  with  this  fact 
in  mind  in  planning  to  control  it  more  scientifically 
by  the  use  of  statistics  set  forth  in  graphic  form. 

Once  the  essentials  of  a  business  have  been  de- 
termined and  the  order  of  their  importance  has  been 
fixed,  the  executive  is  in  a  position  to  direct  the 
preparation  of  the  graphs  which  shall  set  forth  con- 
ditions as  they  exist.  Before  taking  up  departmental 
detail  and  indulging  in  specific  illustrations  of  just 
how  control  is  effected  in  special  cases,  I  will  en- 
deavor to  show  how  the  essentials  of  a  hypothetical 
business  may  be  graphically  arranged  so  as  to  facili- 
tate scientific  administration,  and  how  future  condi- 
tions may  in  a  measure  be  predicted  by  means  of 
standards  set  as  a  result  of  the  study  of  past  condi- 
tions. 

A  Set  of  Typical  Graphs.— The  cost  of  assembling 
the  data,  and  of  keeping  up  a  set  of  graphs  which 
bring  all  the  vital  facts  of  a  business  regularly 
and  promptly  before  the  executive,  is  not  great.  The 
amount  of  detail  which  it  pays  to  present  in  this 
form  depends  upon  the  type  of  business  covered.  It 


ANALYSIS  OF  THE  BUSINESS  129 

has  been  my  experience  that  the  initial  expense  of 
installing  the  system  is  paid  for  many  times  over 
almost  immediately  by  the  saving  involved  in  de^ 
creasing  the  number  of  inefficiencies.  The  full  system 
should  generally  be  kept  up  for  a  year  or  two  while 
the  laws  underlying  the  fluctuations  in  sales,  costs, 
and  other  important  factors  are  being  codified; 
thereafter  it  is  often  possible  to  boil  down  the  system 
to  a  few  vital,  or  key,  curves  whose  fluctuations  tell 
the  whole  story  to  the  executives  who  have  become 
familiar  with  the  exact  cause  underlying  each  effect. 

An  exceedingly  able  executive  of  my  acquaintance 
has  boiled  down  the  essential  data  of  a  business  of 
several  millions  a  year  so  that  they  are  set  forth  on 
one  sheet  of  very  minute  curves  which  lie  keeps  under 
glass  on  his  desk.  He  has  used  the  system  for  six 
or  eight  years,  and  has  discarded  one  by  one  the 
more  elaborate  curves  as  he  has  educated  himself  in 
the  laws  upon  which  his  business  is  founded,  until 
now  the  whole  system  of  statistics  is  reduced,  com- 
paratively speaking,  to  thumb-nail  dimensions. 

The  pages  immediately  following — accompanied  by 
Figure  10,  showing  the  first  series  of  typical  graphs 
— describe  the  method  of  placing  the  facts  of  a  hypo- 
thetical business  before  the  executive  in  sufficient  de- 
tail to  enable  an  intelligent  cost  accountant  to  pro- 
ceed with  the  work,  once  the  executive  has  decided 
upon  the  points  of  his  particular  business  which  it  is 
important  for  him  to  know.  The  second  series  of 
curves — Figures  11,  12,  and  13 — shows  the  method  of 
setting  graphic  standards  in  the  same  detail. 

4 'Net  Profit' '  Graph.— Figure  10  shows  the  " total  net 


130         EXECUTIVE  STATISTICAL  CONTROL 


10000 


FIG.  10.      TOTAL  NET  PROFIT — STANDARD  NET  PROFIT — SOURCE  OF 
PROFIT — DEDUCTIONS  FROM  FACTORY  PROFITS 

profit"  accruing  from  the  business  each  month,  in 
comparison  with  the  standard  of  10  per  cent  set  as  a 
proper  return  upon  the  investment.  The  average  for 
the  year  is  also  shown  in  comparison  with  the  average 
net  profit  for  the  year  previous.  The  lower  broken 
line  represents  the  danger  point,  below  which  the 
"net  profit"  curve  should  not  be  allowed  to  fall  if 
adequate  return  is  to  be  earned. 

The  sources  of  the  net  profit  are  shown  by  the  three 
central  curves  marked  Works  No.  1,  Works  No.  2, 
and  Works  No.  3.  These  represent  the  three  fac- 
tories of  the  company,  whose  earnings  are  given  in 


ANALYSIS  OF  THE  BUSINESS  131 

terms  of  gross  profits.  From  the  aggregate  repre- 
sented by  these  curves  is  subtracted  each  month  the 
amounts  represented  by  the  lowest  curve,  marked 
"Deductions,"  which  include  interest,  discount,  com- 
missions, and  any  other  amounts  not  easily  pro-rated 
to  the  proper  factory.  The  balance  consists  of  the 
amounts  shown  in  the  "Total  Net  Profit"  curve. 

The  executive,  in  making  use  of  this  graph,  as  it 
is  filled  in  monthly  during  the  year,  would  have  the 
variations  in  the  net  profit  forcibly  and  unavoidably 
brought  to  his  attention,  in  such  a  way  that  investiga- 
tion and  the  consequent  maximum  improvement 
would,  under  the  circumstances,  inevitably  ensue.  If 
the  "Net  Profit"  curve  drops  suddenly,  as  it  does  in 
August,  it  is  simply  necessary  to  follow  the  August 
line  down  to  note  that  the  profits  from  Works  No.  3 
were  normal — they  were  well  above  the  previous 
yearly  average;  that  profits  from  Works  No.  1  were 
also  normal;  but  that  there  was  a  sharp  falling  off  in 
the  profits  at  Works  No.  2.  He  need  not,  therefore, 
concern  himself  for  the  present  with  conditions  any- 
where except  at  Works  No.  2. 

Similarly,  since  it  is  necessary  to  analyze  all  ab- 
normal conditions  carefully  in  order  to  avoid  in  future 
those  that  are  unfavorable  and  to  make  permanent 
those  that  are  favorable,  the  rise  in  the  net  profit 
curve  in  June,  when  investigated,  would  show  that 
Works  No.  2  was  the  principal  source  of  the  addi- 
tional profit;  conditions  at  Works  No.  1  were  normal 
and  at  Works  No.  3  only  slightly  above  normal.  The 
executive  may  therefore  conclude  that  there  is  greater 
need  lor  careful  analysis  of  operating  conditions  at 


132         EXECUTIVE  STATISTICAL  CONTROL 


PIG.  11.      GROSS  PROFITS  ON  WORKS  NO.  2 — STANDARD  PROFIT  AND 
AVERAGE  PROFIT  FOR  PRECEDING  YEAR  AND  CURRENT  YEAR 

Works  No.  2  than  at  the  other  plants  in  order  to  em- 
ploy its  profitable  features  in  the  other  plants. 

Analysis  of  Fluctuations. — Since  the  rise  in  profits 
in  June,  and  the  fall  in  August,  were  at  Works  No.  2, 
their  causes  must  be  obtained  by  reference  to  the 
first  chart  in  the  second  series,  Figure  11.  The  graph 
shown  there  keeps  the  executive  informed  at  all 
times  just  how  closely  the  profits  at  this  particular 
factory  approximate  the  standard  earning  previously 
set — in  this  case,  10  per  cent  on  the  investment— 
and  warns  him  at  once  if  the  earnings  fall  below  the 
5  per  cent  danger  line.  This  graph  is  merely  a  re- 
finement of  the  one  shown  for  Works  No.  2  in  Figure 
10.  It  is  valuable  principally  because  it  shows  more 
exactly  just  how  serious  the  variation  from  the 
normal  is,  indicates  what  its  effect  will  be  on  the 
year's  earnings,  and  emphasizes  the  urgency  for  at- 
tention. 


ANALYSIS  OF  THE  BUSINESS 


133 


It  will  be  noted  that  the  June  profit  reached 
$60,000— an  amount  more  than  twice  the  $28,000  re- 
quired to  earn  the  10  per  cent;  while  in  August  this 
factory  made  a  return  of  only  $8,000— or  $5,000  below 
the  5  per  cent  danger  line. 

The  causes  for  these  fluctuations  must  be  sought  on 
the  next  graph  of  the  series,  Figure  12.  There  the 
upper  pair  of  curves  show  the  "Selling  Price"  by 
months  as  compared  with  the  total  "Manufacturing 
Cost"  at  Works  No.  2.  The  lower  curves  show  by 
months  the  factory's  tons  of  output  as  compared  with 
tons  sold.  In  each  case  the  final  monthly  average  for 
the  year  is  shown  at  the  right,  and  the  monthly 
average  for  the  year  previous  is  shown  at  the  left. 


FIG.  12.      SELLING  PRICE  VERSUS  THE  MANUFACTURING  COSTS  AT 

WORKS  NO.   2 — OUTPUT   VERSUS   SALES — AVERAGES   FOB 

PRECEDING   AND   CURRENT   YEAB 


134         EXECUTIVE  STATISTICAL  CONTROL 

The  profit  earned  at  any  factory  is,  of  course,  the 
difference  between  the  prices  received  for  each  unit 
when  it  is  sold,  and  the  cost  to  manufacture  this  unit, 
multiplied  by  the  total  number  of  units  made,  or  the 
factory  output.  The  difference,  then,  between  the 
"Selling  Price"  and  "Manufacturing  Cost,"  multi- 
plied by  the  number  of  units  shown  any  month,  gives 
the  factory  profit  for  that  month. 

It  should  be  noted  that  there  are,  of  course,  certain 
adjustments  that  must  be  made  according  to  the  re- 
quirements of  each  business,  since  very  few  concerns 
would  sell  during  the  month  all  goods  made  that 
month,  while  still  fewer  would  have  no  goods  in 
process  of  manufacture  at  the  end  of  each  month. 
We  have  assumed  in  this  case,  however,  that  these 
unusual  conditions  existed,  in  order  to  avoid  a  long 
digression  concerning  methods  of  taking  inventory. 

Carrying  the  analysis  of  the  abnormal  profits  in 
June  and  in  August  to  this  graph,  the  executive  is  at 
once  able  to  determine  whether  the  variation  is  due  to 
market  conditions  or  to  manufacturing  conditions, 
and  is  thus  enabled  to  give  his  support  to  the  sales 
department  or  to  the  factory.  The  "Selling-Price" 
curve  reaches  in  June  the  high  point  for  the  year, 
$80,  although  that  is  only  two  dollars  above  the 
average  for  the  previous  year.  This  showing  is 
favorable,  but  not  sufficiently  removed  from  the 
normal  to  demand  immediate  attention.  The  "Manu- 
facturing-Cost" curve  shows  a  decided  drop  below 
any  point  reached  so  far  durng  the  year,  and  reaches 
a  point  twelve  dollars  below  the  previous  year's 
average.  Evidently  the  increased  profit  is  due  to 


ANALYSIS  OF  THE  BUSINESS  135 

manufacturing  conditions,  which  must  be  investi- 
gated in  order  that  the  gain  may  be  made  permanent 
if  possible. 

If  August  conditions  are  analyzed  in  a  similar  man- 
ner, it  will  be  found  that  the  falling  of  profits 
$19,000  below  the  standard  set  is  due  about  equally 
to  the  drop  in  the  selling  price  and  to  the  rise  in  the 
manufacturing  costs.  The  first  suggests  to  the  execu- 
tive an  investigation  of  selling  conditions;  the  sales 
manager  may  be  asked  to  report  fully  on  the  reasons 
for  the  fall  in  prices.  The  second  leads  the  executive 
to  turn  to  the  next  graph,  Figure  13,  which  deals  with 
operating  costs  at  the  factory.  (It  should  be  noted 
that  the  "Sales"  curve  in  Figure  12  is  shown  to  in- 
dicate how  sales  keep  up  with  the  production.  Sales- 
analysis  graphs  are  described  elsewhere.) 

Fundamental  Factors. — Figure  13  comprises  three 
sets  of  curves.  That  at  the  top  shows  the  monthly 
output  in  tons;  the  two  curves  in  the  center  show  the 
direct-labor  cost  per  ton  and  the  indirect-labor  cost 
per  ton;  while  the  curve  at  the  bottom  shows  the 
material  cost  per  ton.  Monthly  averages  for  the 
year  under  consideration  and  for  the  previous  year 
are  shown  at  the  right  and  left  respectively. 

On  this  sheet  the  executive  gets  fundamentals,  and 
by  careful  analysis  of  the  conditions  and  their  effects 
he  can  deduce  the  general  laws  underlying  his  own 
particular  business. 

For  instance,  take  the  low  manufacturing  cost  in 
June,  shown  on  the  previous  chart.  The  output  is  500 
tons  (or  20  per  cent)  above  the  average.  We  should 
naturally  expect  that  a  drop  in  the  indirect  cost  per 


136         EXECUTIVE  STATISTICAL  CONTROL 


£3000 

o 

H  2000 


\ 


\ 


A 


CURRENT    YEAR 


FIG.    13. 


OUTPUT — DIRECT   AND   INDIRECT   LABOR    COST    PER   TON 
— TOTAL  MATERIAL  COST   PER   TON 


ton  would  follow,  since  the  fixed  charges  would  re- 
main nearly  constant  while  the  divisor  (the  output) 
increased.  We  find  this  to  be  the  case,  if  we  refer  to 
the  dotted  curve,  which  shows  a  reduction  of  $2.20 
per  ton,  33  per  cent  below  the  average  indirect  cost 
per  ton  for  the  previous  year. 

It  is  to  be  noted  also  that  other  factors  in  the  cost- 
reduction  were  a  drop  of  about  $0.70  in  the  direct 
labor,  and  of  $9  in  the  material  cost.  This  latter  cost, 


ANALYSIS  OF  THE  BUSINESS  137 

quite  likely,  is  beyond  the  control  of  the  executive, 
but  it  must  be  shown  in  order  that  he  may  not  take 
the  credit  for  a  low  cost  when  the  saving  is  not  at- 
tributable to  anything  his  organization  has  done,  but 
to  market  conditions.  If  this  cost  were  not  shown, 
he  might  naturally  neglect  certain  departments  in 
which  the  cost  of  production  is  rising  and  which 
consequently  need  attention.  In  other  words,  such 
matters  as  are  the  business  of  the  executive  must  be 
put  squarely  up  to  him  in  such  a  way  that  he  cannot 
overlook  or  neglect  them. 

Applying  the  Remedy. — Concluding,  then  that  the 
June  cost-reduction  under  his  control  is  due  to  indirect 
and  direct  labor,  the  executive  investigates,  first,  the 
methods  of  maintaining  a  large  output.  His  research 
eventually  leads  him  to  a  consideration  of  the  sales 
department  and  to  an  investigation  of  market  con- 
ditions. Incidentally,  he  would  consult  graphs  in 
order  to  discover  the  increase  or  decrease  in  such 
items  as  general  expense  and  sales  expense,  and  to 
make  certain  that  there  is  no  waste,  and  that  no 
extraordinary  opportunity  for  economy  is  being  over- 
looked. 

The  drop  in  direct  labor  in  June  leads  to  a  perusal 
of  the  graphs  covering  the  various  departments  and 
the  cost  of  each  operation  therein.  If  direct  labor 
costs  are  either  low  or  high,  there  is  a  definite  reason, 
and  the  executive  must  not  rest  until  he  has  made 
the  gain  permanent  or  corrected  the  fault  responsible 
for  the  rise  in  cost. 

I  have  not  attempted  to  carry  the  illustrations  into 
further  subdivisions  here,  because  doing  so  would 


138          EXECUTIVE  STATISTICAL  CONTROL 

very  shortly  have  brought  us  from  the  field  of  general 
principles  to  that  of  the  particular  business,  which  it 
is  not  my  purpose  to  treat  at  this  time.  I  believe 
enough  has  been  said,  however,  to  illustrate  the 
method;  greater  detail  will  be  given  later.  But  to 
analyze  a  month  in  which  costs  are  high,  I  shall  take 
the  month  of  August,  when  the  costs  were  some  dol- 
lars higher  than  in  June.  "What  strikes  us  first  is,  of 
course,  the  jump  of  about  five  dollars  in  the  indirect- 
labor  cost.  This  we  may  lay  to  the  decrease  of  a 
thousand  tons  in  the  output — caused,  let  us  assume, 
labor  costs  rose  also.  The  reason  may  be  determined 
by  a  fire  in  one  of  the  largest  departments.  Direct- 
by  reference  to  the  department  graphs.  The  execu- 
tive might  find  that  the  rise  in  cost  was  due  to  the 
disorganization  incidental  to,  and  following,  the  fire; 
or  that  the  labor  involved  in  the  repairing  and  clean- 
ing up  was  charged  against  operation,  instead  of  to 
extraordinary  expense  as  it  should  have  been.  Such 
matters  must  be  investigated,  and  from  the  conclu- 
sions drawn  exact  methods  must  be  evolved  for  future 
guidance. 

Economy  is  effected  through  the  knowledge  of 
exactly  what  the  disaster  cost  in  operating  expense, 
in  loss  of  output,  and  so  in  profits.  Complete 
analysis  in  this  case  would  lead  the  executive,  when 
he  discovered  that  his  loss  of  output  had  cost  him 
$52,000  profit,  to  take  steps  of  the  most  decided 
nature.  (Compare  June  and  August,  Figure  11,  after 
noting  that  material  costs  were  nearly  constant,  with 
the  same  months  in  Figure  13.)  Fire  extinguishers 
would  be  put  in,  a  sprinkler  system  would  be  in- 


ANALYSIS  OF  THE  BUSINESS  139 

stalled,  an  employees'  fire  department  would  be 
organized,  or  a  fire-proof  building  would  be  erected, 
and  thus  such  a  loss  would  be  prevented  in  the  future. 
It  is  much  easier  for  an  executive  to  obtain  appro- 
priations for  needed  preventives  if  he  can  show  his 
directors  exactly  where  the  disaster  touched  the 
pockets  of  the  stockholders,  than  if  he  has  to  rely 
merely  upon  arguments. 

Relationship  of  Curves. — I  have  indicated  the 
economies  to  which  an  analysis  of  particular  months 
may  lead.  It  remains  for  me  to  show  the  advantage 
to  be  gained  by  analyzing  one  curve  showing  condi- 
tions over  a  considerable  period,  and  noting  the  effect 
of  other  conditions  upon  it.  The  effect  of  the  output 
upon  the  indirect  labor  may  be  taken  as  an  illustra- 
tion. In  the  previous  year  the  factory  above  con- 
sidered had  a  moderate  output  of  2500  tons  per  month 
and  a  moderately  high  indirect-labor  cost  of  $6.20  per 
ton.  During  the  early  months  of  the  current  year  the 
low  output  incidental  to  the  season  kept  the  charge 
of  indirect  labor  hovering  around  $6.50.  As  the  out- 
put jumped  in  June  and  July,  the  indirect-labor  cost 
dropped  over  $2  per  ton.  The  accident  in  August 
took  it  up  to  $9,  and  it  was  not  until  October  that  it 
approached  $4  again.  The  output  apparently  was 
not  enough  larger,  however — since  it  was  700  tons 
less  than  in  June — to  account  for  all  of  this  drop. 

The  reasons  for  that  drop  would  have  to  be  sought 
in  graphs  covering  various  sorts  of  overhead  ex- 
pense. The  tendency,  however,  is  very  clear,  and  the 
executive  can  determine  exactly  the  effect  output  has 
upon  his  profits,  and  can  plan  ways  and  means  that 


140          EXECUTIVE  STATISTICAL  CONTROL 

will  carry  the  business  over  seasonal  slumps.  After 
studying  this  phase  for  a  year  or  two,  he  is  in  a  posi- 
tion to  determine  exactly  how  much  he  can  afford  to 
cut  prices  at  certain  seasons  of  the  year  in  order  to 
keep  the  factory  busy  to  capacity  at  all  times.  It 
was  consideration  of  just  such  factors  as  this  which 
a  few  years  ago  led  some  of  our  larger  corporations 
to  dump  a  certain  portion  of  their  product  in  foreign 
countries — an  action  that  obtained  wide  publicity  and 
brought  caustic  comment  from  such  economists  as 
were  socialistically  inclined.  The  principle  is  a 
sound  one,  but  if  disaster  is  to  be  avoided  there  must 
be  knowledge  of  the  limits  permissible. 

The  "Direct  Labor"  curve  must  be  examined  in 
connection  with  the  departmental  curve.  Careful 
study  of  this  curve  over  a  period  leads  almost  in- 
evitably to  the  standardization  of  labor  conditions. 
The  fall  in  the  "Direct  Labor"  curve  shown  in 
Figure  13  would  have  to  be  ascribed  to  some  such 
cause  as  that.  The  general  tendency  downward  in 
the  "Material"  curve  would  be  caused  to  a  great 
extent  by  a  fall  in  the  cost  of  raw  materials,  al- 
though a  considerable  percentage  of  it  might  be  due 
to  the  standardization  of  materials  and  the  awarding 
of  a  bonus  to  employees  to  encourage  the  elimination 
of  waste. 

In  general,  it  can  be  said  of  these  various  curves 
that  the  fluctuations  of  any  one  of  them  are  inde- 
finably associated  with  the  fluctuations  of  each  of  the 
others,  and  that  it  is  only  by  close  study  of  the 
effect  of  one  upon  the  others  over  a  considerable 
period  of  time  that  the  executive  can  make  sure  of 


ANALYSIS  OF  THE  BUSINESS  141 

obtaining  maximum  results  in  the  way  of  low  operat- 
ing costs,  large  sales,  and  ultimate  profits. 

Setting  Standards — Profit. — It  is  only  after  making 
a  thorough  and  detailed  study  of  past  conditions  that 
the  executive  is  in  a  position  to  set  standards  to  be 
attained.  The  following  graphs,  Figures  14,  15,  and 
16,  illustrate  a  method  of  effecting  this  standardiza- 
tion. The  standards  set  were  based,  in  each  case, 
upon  a  hypothetical  analysis  of  conditions  assumed 
to  prevail  during  the  year  shown  by  the  series  of 
graphs  presented  in  the  preceding  pages.  In  Figure  14 
it  will  also  be  noted,  I  have  shown  the  actual  year's 
accomplishment — merely  for  the  sake  of  convenience, 
to  illustrate  the  method  of  procedure.  I  have  found 
that  thorough  standardization  has  resulted,  almost 
without  exception  in  a  much  closer  degree  of  attain- 
ment than  that  shown. 

Figure  14  shows  the  profit  that  must  be  earned 
each  month  at  Works  No.  2  in  order  that  this  plant 
may  bear  its  share  of  the  10  per  cent  return  on  the 
investment  which  has  been  set  as  a  standard  net 
profit  for  the  corporation  as  a  whole.  The  broken 
line,  marked  "Standard,"  represents  the  cumulative 
earning  which  an  analysis  of  selling  and  manufac- 
turing conditions  has  shown  to  be  a  reasonable  at- 
tainment each  month.  Thus,  the  gross  profit  from 
this  factory  should  be  $24,000  for  January.  By  the 
end  of  February  this  profit  should  have  grown  to 
$52,000;  by  the  end  of  March  to  $81,000,  and  the 
increase  should  have  gone  on  in  this  proportion. 

The  solid  line,  marked  "Actual,"  shows  how  near 
to  the  prescribed  standard  the  year's  conditions  would 


1  5000O 

140  000 

/ 

.X 

1 

130000 

1 

j 

/ 

X 

I20OOO 

1 

/ 

/ 

1  |  0000 

/ 

/ 

1 

1 

/ 

90000 

i 

/ 

«  ^wvw 
I 

*' 

V 

«/ 

—  7000O 

/ 

\ 

<. 

\ 

/ 

o 

a 

^  60000 

/ 

/ 

/ 

50000 

/ 

/ 

/ 

/ 

7 

/ 

t 

/ 

20000 

/ 

/ 

/ 

/ 

7 

^—  - 

/ 

2 
< 

:   a 

I   H 

! 

\  \ 

1 

L 

2 

E 

{  i 
i  = 

s 

— 

< 

-  1 

: 

i 
1 

FIG.    14.      STANDARD    VERSUS    ACTUAL    PROFITS    CUMULATIVE 

BY  MONTHS 

142 


ANALYSIS  OF  THE  BUSINESS  143 

have  allowed  the  actual  profit  for  that  year  to  ap- 
proach. It  will  be  noted  that  at  the  end  of  February 
the  actual  profit  was  $49,000  below  the  standard,  and 
that  by  May  it  was  $76,000  short  of  the  standard,  and 
so  on. 

Selling  Prices. — It  is  obvious  that  in  order  to  set  a 
standard  profit  it  is  necessary  only  to  determine  for 
each  month  a  standard  selling  price  and  a  standard 
manufacturing  cost  per  unit,  and  to  multiply  the 
difference  between  these  by  the»figure  representing 
the  standard  output.  The  difficulty  lies  in  the  stand- 
ardization of  factors  composing  the  cost,  selling  price, 
and  other  items.  I  shall  discuss  the  method  of  deter- 
mining these  as  I  proceed.  It  should  be  noted,  how- 
ever, that  the  profit  has  been  standardized  to  bring 
in — allowing  for  seasonal  fluctuations — at  least 
enough  to  secure  the  10  per  cent  return  on  the  invest- 
ment which  has  been  set  as  the  standard  earning  for 
the  company. 

Figure  15  shows,  by  means  of  the  diagonal  broken 
line  marked  "Standard  Returns,"  the  cumulative 
amount,  by  months,  to  be  received  from  sales.  The 
solid  line  shows  the  actual  receipts  for  the  year.  The 
standard  sales  price  per  ton  set  for  each  month  is 
shown  by  the  curve  at  the  top  of  the  chart — the 
cumulative  average  is  represented  by  the  broken 
line  and  the  individual  monthly  averages  by  the 
dotted  line.  Similarly,  the  curve  below  shows  how 
closely  the  monthly  selling  prices  for  the  year  ap- 
proached these  standards. 

The  matter  of  standardizing  selling  price  is  a  diffi- 
cult one.  In  some  cases  it  is  manifestly  impossible 


/ 

j 

i 

3fan 
•   P* 

•Jard 

r  Ton 

^ 

i 

1 

_v  

>>^ 

2 

Currn? 

NJV 

i  / 

i     / 

1 

*», 

/ 

\    N^ 
\/ 

s 

7 

! 

/, 

/ 

t/3 

o: 

I  ! 

f  i 

y 

/ 

/ 
/ 

</> 
a 
< 

o 

Q 

/ 

; 
/ 

i 

i    ^ 

/' 

O 

Q 

Actua 
fPe, 

•  Ton 

// 

// 

£ 

\\\ 

F 

/ 

-0 
V 

.c/1 

^ 

^ 

\ 

^ 

Ay 

r 

/I 

/ 

// 

i 

2 
< 

!   t 

i          c 

J             3 

i         o 

C             0 

:         > 

< 

•    I 

'      > 

>         ~ 

\    i 

i 

FIG.  15.      SELLING  PRICES — CUMULATIVE  AND  MONTHLY 

The  scale  at  the  left  Indicates  monthly  and  cumulative  totals ;  at  the 

right  prices  per  ton. 

144 


ANALYSIS  OF  THE  BUSINESS  145 

to  set  a  price  any  length  of  time  in  advance  at  which 
the  goods  should  be  sold.  We  must  remember,  how- 
ever, that  in  every  business  there  is  some  one  in 
authority  who  does  set  the  selling  price,  and  that  he 
sets  this  price  before  the  sale  is  made.  We  should 
remember,  also  that  the  more  past  data — call  it  the 
product  of  experience,  or  what  you  will — he  has  in 
his  possession,  the  more  intelligently  he  can  set  this 
price,  the  longer  in  advance  he  can  predict  market 
conditions,  and  therefore  the  more  he  will  obtain  for 
his  goods. 

Such  is  the  principle.  The  application  varies  with 
every  business.  I  have  in  mind  at  the  present 
writing  instances  of  three  widely  divergent  types  of 
business — types  in  which  the  keenest  competition  pre- 
vails, in  which  there  are  considerable  general  and 
seasonal  market  fluctuations,  and  in  which  the  sell- 
ing price  is  set  months  in  advance — and  I  know  that 
these  concerns  are  all  living  up  to  the  standards  set 
with  a  regularity  and  precision  which,  to  the  un- 
initiated, would  at  times  seem  positively  uncanny. 

The  "bonus  for  salesmen"  system,  which  I  have 
already  mentioned,  is  a  decided  aid  in  the  standard- 
ization of  the  selling  price.  This  system  makes  it 
directly  to  the  financial  interest  of  each  salesman  and 
sales  manager  to  maintain  the  selling  price  and  the 
quantity  of  sales,  and  to  keep  down  the  selling  ex- 
pense, by  rewarding  him  exactly  in  proportion  to  the 
effect  of  his  efforts  as  regards  the  ultimate  profits  of 
the  firm.  The  system  also  tends  to  diminish  ma- 
terially the  many  and  specious  reasons  for  cutting 
prices  which  are  advanced  by  salesmen  on  commis- 


146          EXECUTIVE  STATISTICAL  CONTROL 

sion,  and  by  salesmen  who  think  their  promotion  de- 
pends upon  the  quantity  of  their  sales  alone.  It 
tends,  too,  very  materially  to  steady  the  market. 

Just  how  far  ahead  the  sales  price  can  be  stand- 
ardized depends  upon  the  particular  business;  the 
question  must  be  settled  by  each  concern  according 
to  circumstances.  The  further  ahead  the  executive 
tries  to  look,  however,  the  more  proficient  he  be- 
comes. The  more  exact  his  data  on  past  perform- 
ances, the  more  likely  he  will  be  to  make  accurate 
predictions.  The  mere  fact  that  he  has  set  up  a  mark 
to  shoot  at  will  tend  to  bring  him  a  goodly  number  of 
bull's-eyes.  A  rise  in  the  average  selling  price,  other 
things  being  equal,  is  inevitable — and  an  increase  in 
the  net  profits  is  also  certain. 

It  will  be  noted  that  Figure  15  shows  a  standard 
selling  price  of  about  $79  for  January  and  February, 
which  is  raised  (it  is  assumed)  for  March  and  April 
to  cover  an  anticipated  rise  in  the  price  of  certain 
raw  materials,  and  which  is  later  lowered  to  cover  a 
drop  in  the  market.  Actual  conditions  for  the  year, 
in  the  curve  marked  "Actual,"  do  not  even  approxi- 
mate the  conditions  predicted,  either  in  the  selling 
price  per  ton  or  in  the  return  from  sales. 

Output. — It  should  be  understood  that  in  standard- 
izing the  selling  price  the  firm  places  no  restraint 
upon  prices,  unless  it  be  decided  that  it  is  to  the 
interest  of  the  firm  in  the  long  run  not  to  exceed  a 
certain  maximum  price.  In  the  particular  instance 
illustrated  by  the  graphs,  the  selling  price  was 
standardized  simply  at  a  figure  high  enough  above 
the  standard  of  production  so  that  the  difference 


ANALYSIS  OF  THE  BUSINESS  147 

would,  when  multiplied  by  the  standard  output  for 
the  year,  yield  sufficient  profit  to  earn  the  standard 
return  of  10  per  cent  on  the  investment.  By  com- 
paring the  actual  selling  price,  then,  with  this  stand- 
ard, the  executive  can  find  out  at  any  time,  at  a 
glance,  how  nearly  he  is  earning  his  standard  profit. 

For  an  illustration,  notice  the  month  of  May: 
Reading  the  cumulative  diagonals,  the  executive  ob- 
serves that  he  has  received  $770,000  from  sales  during 
the  five  months,  whereas  he  should  have  taken  in 
$1,200,000.  Further,  he  finds  that  he  has  sold  his 
product,  so  far,  at  an  average  price  of  $75.90,  while 
he  should  have  averaged  $78.60  for  the  five  months. 
In  addition,  he  notes  that  his  May  sales  brought  him 
$78  per  ton — and  he  expected  to  receive  $75.10  per 
ton.  In  short,  he  can  tell  at  a  glance  just  how  well 
he  is  doing  in  any  particular  month  and  just  how 
much  he  is  behind  schedule — and  how  much  he  must 
manage  to  boost  prices  during  the  remainder  of  the 
year  if  he  is  to  make  his  standard  profit.  There  is 
no  question  that  such  knowledge  spurs  a  man  to 
greater  effort. 

Figure  16  shows,  in  cumulative  form,  the  standard 
output  determined  upon,  and  the  close  approximation 
of  that  standard  by  the  output  of  the  current  year. 

In  order  to  establish  a  standard  profit,  the  execu- 
tive must  determine  upon  a  standard  output.  He 
must  know  the  number  of  units  that  must  be  made — 
and  sold — as  well  as  the  standard  selling  price,  in 
order  to  attain  the  standard  profit.  An  examination 
of  former  production  curves  has  shown  him  that  the 
factory  can,  when  pushed,  turn  out,  say,  3,200  tons 


> 

D 
( 

14.000 
13.000 
12,000 
11.000 
10,000 
9.000 

w    ftooo 

z 
o 

*~      7.000 

i 
i 

1 

1 

/ 

1 

j 

i 

1 

// 

J 

I 

7 

! 

i 

1 

i 

/ 

5.000 
4000 
'iooo 

2.000 
1,000 

i  , 

/ 

! 

/ 

11 

/ 

j/ 

1 

/ 

\i\i\\\\ 

FIG.  16.      STANDARD  AND  ACTUAL  OUTPUT— CUMULATIVE 
148 


ANALYSIS  OF  THE  BUSINESS  149 

a  month  (Figure  13).  He  has  further  determined 
from  his  sales  curve  that,  unless  he  is  prepared  to 
stock  heavily,  it  is  unwise  to  make  more  than  2,200 
tons  in  January,  2,500  tons  in  February,  2,700  tons  in 
March,  and  so  on.  He  standardizes  his  output  ac- 
cordingly, so  that  his  cumulative  production  at  the 
end  of  April  should  amount  to  10,200  tons.  Refer- 
ence  to  his  standard-output  graph  (Figure  16),  then, 
would  show  him  that  by  the  end  of  April  he  has 
made  7,400  tons  and  is  2,800  tons  behind  schedule, 
and  that  he  must  make  up  the  deficiency  by  the  end 
of  the  year  if  he  is  to  secure  his  standard  profit. 

Manufacturing  Cost. — In  Figure  17,  the  diagonal 
broken  line  shows  the  standard  prescribed  as  the 
cumulative  expense  to  be  incurred  for  manufacture 
at  Works  No.  2.  The  solid  line  shows  how  little  dif- 
ference there  was,  as  the  year  progressed,  between 
the  manufacturing  expense  for  the  year  and  this  pre- 
determined budget. 

The  curve  at  the  top  shows  the  actual  cost  per  ton 
by  months  and  also  in  terms  of  cumulative  aver- 
age. The  lower  curve  shows  the  standards  set.  The 
other  factor  in  determining  the  profit — besides  selling 
price  and  quantity  sold — is  the  manufacturing  cost. 
The  standardization  of  manufacturing  cost  usually 
implies  the  introduction  of  scientific  management  in 
the  factory.  It  is  not  my  purpose  to  enter  here  into 
a  lengthy  discussion  of  this  phase  of  the  matter. 
Briefly,  however, — assuming  that  he  has  determined 
what  his  product  should  cost — the  executive  would 
would  find  by  reference  to  this  graph  in  May,  for  in- 
stance, that  if  this  factory  had  turned  out  the  stand- 


I.400.0C, 
1.300,000 
1200.000 

i.roo,ooo 

1.000.000 
900.000 
800,000 

V) 
tt 

j  700,000 
600,000 
500,000 
400.000 
300,000 
200,000 
100,000 

72.00 
71.00 
7QOO 
69.00 
68£>0 
6700 
66XJO 

65.00  5 
O 

o 

6400 

63.00 
6  ZOO 
61.00 
60OO 
59.00 

> 
> 

c 

«  t  ,  t     / 

per  Ton 

.\ 

\ 

v 

\^\ 

-^ 

Stan 

Jard 

f 

T" 

ki 

-L- 

y 

V- 

\y 

\ 

V 

s 

2^ 

7 

\ 

A 

J7 

L 

/ 

\ 

<j 

i 

/ 

\ 
\ 

t 

o/ 

V 

t 
\ 

/A 

\ 

// 

' 

• 

2 

2_ 

\i\\\\\\ 

FIG.  17.      TOTAL  MANUFACTURING  COST 

The  scale  at  the  left  shows  total  expenditures ;  that  at  the  right  ex- 
penditures per  ton. 
150 


ANALYSIS  OF  THE  BUSINESS  151 

ard  output  at  the  standard  cost,  the  expenditure 
would  have  been  $880,000.  The  solid  diagonal  line 
shows,  however,  that  actually  only  $700,000  has  been 
spent.  We  have  already  seen  that  the  factory  failed 
on  the  output.  Eeference  to  the  cost  curves  at  the 
top  of  the  chart,  which  show  the  cost  per  ton  to 
manufacture,  discloses  the  fact  that  the  average  cost 
per  ton  during  the  first  five  months  of  the  year  was 
$69.30— it  should  have  been  $67.65— and  that  the  May 
cost  per  ton  was  $66  as  against  a  standard  May  cost 
of  $64.10.  Again  the  executive  knows  just  how  much 
behind  he  is,  and  just  how  much  must  be  accom- 
plished if  the  business  is  to  earn  the  standard  profit. 

This  manufacturing  expense,  and  cost  per  ton  to 
manufacture,  is  shown,  subdivided  into  its  elements, 
in  Figures  18  and  19.  Figure  18  shows,  in  cumula- 
tive form,  by  the  diagonal  line,  the  monthly  expendi- 
ture set  as  the  standard  for  direct  labor  at  Works 
No.  2.  The  solid  line  shows  the  year's  expenditure. 
The  curve  at  the  top  of  the  page  shows  by  months 
the  actual  cost  per  ton  of  direct  labor,  and  also  the 
cumulative  average  as  the  year  progressed.  The 
lower  curve  shows  the  standard  cost  per  ton  for  direct 
labor.  As  has  been  stated,  the  standardization  of 
manufacturing  costs  is  dependent  largely  upon  scien- 
tific management,  and  the  direct-labor  costs  are  still 
more  dependent  upon  it.  The  cost  of  each  operation 
must  be  standardized  by  means  of  analytical  time- 
study,  and  a  bonus  must  be  offered  so  that  it  will  be 
to  the  interest  of  each  employee  to  attain  this  stand- 
ard. 

The  graph  under  consideration  brings  out  the  ap- 


150.000 
140.000 
130.000 
120.000 
110.000 
100,000 
90.000 

V) 

£     80.000 

o 

Q     70,000 
60.000 
50.000 
40.000 
30,000 
20.000 
1  0.000 

10.00 
9.00 
8.00 
7.00 
6.00 
5.00  ' 

4.00 
M 

ac 

J 
O 
Q 

7          \ 

' 

pern 

n 

^\ 

,s~ 

\    "" 

4  

'•Stan 
f" 

lard 
r  Ton 

A 

// 

i 

7 

Jy 

w 

i 

V 

/ 

/ 

u          v 
z         m          *          f          >         z          5 

ne  -cv.i    <    s_  ;?'.;? 

FIG.  18.      DIRECT  LABOR  EXPENSE 
152 


ANALYSIS  OF  THE  BUSINESS 


153 


80000 

900 

70000 

/ 

V 

/ 

800 

/;/ 

/ 
/ 

'v4  cfu 

^*^~- 

(/*b> 

a** 

/ 

•' 

a 

To 

n 

/ 

! 

Vi 

/ 

o: 

-J 
o 

•Stan 
per 

0W** 

Ton 

:—  — 

/•s 

2f£/.2/ 

g 

f 

O 
Q 
40O 

V 

Mont 

,./ 

/" 

I 

a 

i 
u 

i         o 
j         < 

2 

:         < 

(.            > 

L                   < 

C           J 

J         2 

. 

1              5 

J              (. 
3 
>              « 

> 

i 

c 

FIG.  19.      INDIRECT  LABOR  EXPENSE 

parently  anomalous  fact  that  it  is  quite  possible  to 
obtain  a  satisfactory  standard  cost  per  unit  of  manu- 
facture, even  if  the  profits  are  unsatisfactory,  when 
too  little  money  is  being  spent  for  manufacture.  It 
will  be  noted  that  by  June  the  actual  cost  per  ton, 
cumulative,  has  reached  $67.20,  within  $0.10  of  the 
standard  set  (to  earn  10  per  cent  profit),  but  that 
only  $900,000  has  been  spent,  though  $1,600,000  should 
have  been  spent  for  manufacture.  The  cause  of  this 
seeming  inconsistency  would  later  be  found  to  be  a 
drop  in  the  cost  of  material.  This  drop  reduced  the 
manufacturing  cost  and  necessitated  a  cut  in  price, 


154         EXECUTIVE  STATISTICAL  CONTROL 

so  that  the  margin  of  profit  did  not  increase  suffi- 
ciently to  sustain  the  profit  when  the  output  did  not 
reach  the  standard.  It  is  just  such  obscure  relation- 
ships that  are  made  clear  by  the  use  of  graphs. 

Figure  19  shows,  in  cumulative  form,  by  the  diag- 
onal broken  line  the  monthly  expenditure  set  as  the 
standard  for  indirect  labor  at  Works  No.  2.  The 
solid  line  shows  the  actual  expenditure  for  the  year. 
The  curve  at  the  top  shows  by  months  the  actual  cost 
per  ton  of  indirect  labor,  and  also  the  cumulative 
average.  The  lower  curve  shows  the  standard  cost 
per  ton  set  for  direct  labor. 

Indirect-Labor  Standards.  —  Indirect-labor  cost, 
when  all  possible  inefficiencies  have  been  eliminated, 
is  largely  a  matter  of  output.  The  executive,  in  this 
case,  after  studying  the  curve,  would  perhaps  con- 
clude that,  since  the  low  mark  of  $4  per  ton  had 
been  reached  in  July  with  an  output  of  3200  tons,  it 
would  be  reasonable  to  suppose  that  such  a  cost 
could  be  maintained  continuously,  if  the  factory  could 
turn  out  3200  tons  a  month.  As  a  matter  of  fact,  he 
knows  from  a  study  of  past  years  that  the  market 
will  not  take  over  2200  tons  in  January,  but  that  by 
March  it  should  be  taking  2700  tons  a  month,  by  June 
2900  tons,  and  so  on.  He  feels,  however,  that  by  thor- 
oughly overhauling  the  works,  introducing  more  effi- 
cient methods  of  organization — in  brief,  by  adopting 
all  possible  means  of  efficiency — he  can  reduce  this 
overhead  to  some  extent.  He,  therefore,  places  his 
indirect-labor  standard  at  $4.05  for  the  busy  season, 
when,  he  believes,  the  market  should  absorb  2900  tons. 
In  the  spring,  when  the  market  is  good  for  only  2800 


ANALYSIS  OF  THE  BUSINESS  155 

tons,  the  indirect-labor  cost  is  raised  proportionately 
and  is  standardized  at  $4.10,  rising  to  $4.20  with  a 
2700-tons  standard  output  in  March,  to  $4.60  in  Feb- 
ruary with  2500  tons,  and  reaching  the  high  point  of 
$5.20  in  January  with  its  2200  tons  standard. 

Once  the  indirect-labor  standard  has  been  figured 
out  in  this  way,  the  executive  is  in  a  position  to  de- 
cide whether  to  cut  prices  and  maintain  output,  or  to 
maintain  price  and  let  the  output  fall,  since  he  is  in  a 
position  to  know,  almost  to  the  dollar,  just  what 
every  ton  drop  in  output  will  cost  him. 

The  setting  of  accurate  and  attainable  standards 
depends  upon  the  preparation  of  records  which  are 
exact  and  which  can  be  easily  assimilated.  It  is  nec- 
essary to  go  much  further  into  departmental  subdiv- 
isions than  has  been  indicated  here,  to  make  accurate 
predictions.  I  have  attempted  only  to  indicate  the 
way  with  a  few  generalities,  since  the  illustrations 
can  be  only  general  unless  a  specific  business  is  dis- 
cussed. 

Given  the  organization,  the  executive  who  has  his 
business  before  him — as  a  modern  general  has  his 
battlefield  before  him,  accurately  mapped  to  scale — is 
much  more  likely  to  predict  exactly  and  to  bring 
about  the  outcome  he  desires,  than  the  man  who  de- 
pends merely  upon  his  intuition  and  upon  the  uncor- 
related  data  he  happens  to  remember.  And  the  exec- 
utive who,  like  the  modern  general,  is  prepared,  is 
the  one  who  will  win  his  fight  upon  the  battlefields  of 
business. 


CHAPTER  IX 

EFFICIENT  SELECTION  AND  CONSEBVATION 
OF  LABOR 

The  Executive's  Raw  Materials. — Before  the  future 
can  he  predicted  with  any  degree  of  certainty  it  is 
necessary,  as  has  been  stated,  to  analyze  the  past  in 
considerable  detail.  The  general  laws  which  govern 
business  must  be  understood,  and  the  laws  which  are 
peculiar  to  the  particular  business  must  be  discovered 
and  codified. 

In  the  last  chapter  I  endeavored  to  show  the  target, 
as  it  were,  at  which  the  executive  who  would  admin- 
ister his  business  scientifically,  must  aim.  Before  he 
can  hope  to  blast  from  its  dugouts  the  inefficiency 
which  has  intrenched  itself  in  the  business  under  the 
guise  of  "casual  methods  of  management,"  he  must 
understand  not  only  his  ammunition  and  his  gun,  but 
also  the  laws  of  trajectory  and  of  impact.  In  the 
following  chapters  I  shall  endeavor  to  describe  in 
detail  the  materials  with  which  the  executive  must 
work,  and  the  machinery  at  his  command  together 
with  its  action  and  its  effect  upon  the  efficiency  of  the 
business. 

It  may  seem  trite  to  say  that  the  raw  materials 
with  which  the  executive  must  work  are  labor  and 
material,  but  special  emphasis  may  well  be  laid  upon 
the  fact  that  in  final  analysis  his  success  will  depend 
upon  the  sureness  of  touch  with  which  he  moulds 

156 


SELECTING  AND  CONSERVING  LABOR        157 

these  two  elements  into  the  symbol  of  victory  which 
the  business  that  he  controls  represents  for  him.  The 
machinery  with  which  he  shapes  these  raw  materials 
successfully  consists  of  his  organization  and  his 
methods  of  control.  The  action  of  this  machinery 
depends  upon  the  care  and  intelligence  with  which  it 
is  built  into  the  business,  and  its  effect  depends  upon 
this  and  upon  the  consistency  and  skill  with  which 
it  is  used  by  the  executive. 

Labor-  and  Material-Conservation.— The  method  of 
attack  in  the  case  of  the  usual  business  which  has 
grown  up  under  casual  management  consists,  first  of 
all,  of  a  survey  of  the  labor  and  of  the  material. 
Two  questions  are  asked: 

1.  Is  the  labor  employed  efficiently?     (Efficiency 
of  selection,   efficiency  of  conservation,   efficiency  of 
supply,  and  efficiency  of  use  are  involved.) 

2.  Is  the  material  being  wasted?     (Efficiency  of 
purchase,  efficiency  of  conservation,  and  efficiency  of 
use  are  involved.) 

Skilled  engineers  have  estimated  the  labor  efficiency 
of  the  business  which  is  considered  well  run — accord- 
ing to  the  usual  standards  in  industrial  America — at 
from  fifty  to  seventy  per  cent  of  the  standards  that 
are  attained  after  the  application  of  what  is  known 
as  scientific  management.  As  a  matter  of  fact,  the 
regularity  with  which  the  efficiency  of  the  usual  "well 
run"  business  falls  between  sixty  and  seventy  per 
cent  of  such  standards  becomes  almost  appalling  in 
the  eyes  of  those  who  have  made  a  number  of  in- 
dustrial surveys. 


158         EXECUTIVE  STATISTICAL  CONTROL 

The  labor  efficiency  in  the  poorly  run  business  is 
often  only  twenty-five  or  thirty  per  cent.  When 
you  go  through  a  factory  and  find  men  operating  one 
heat-treating  furnace,  when  the  proportion  of  the 
heating  up  to  the  quenching  time  was  as  six  to  one, 
and  when  these  men  could  just  as  easily  have  oper- 
ated five  or  six;  when  you  find  aluminum  being  cut 
at  speeds  and  feeds  low  enough  to  machine  the  hard- 
est steel — and  with  the  same  sort  of  tools;  when  you 
find  sheet-metal  blanks  being  punched  three  times  on 
three  different  machines  when  a  properly  designed 
die  would  have  made  all  three  punches  at  once — then 
you  can  easily  believe  such  statements. 

When  you  add  to  inefficiencies  of  this  sort  time 
lost  through  lack  of  power,  lack  of  material,  lack  of 
proper  tools  at  the  proper  time,  lack  of  definite  in- 
structions, in  fact,  lack  of  all  the  things  that  make 
it  possible  for  the  operator  to  perform  continuous 
work — and  then  add  to  such  causes  of  interruptions 
the  lack  of  incentive  caused  by  wages  being  the  same, 
whether  time  is  spent  working  or  waiting,  you  know, 
if  you  have  trained  yourself  to  observe  actual  condi- 
tions, that  existing  conditions  are  not  in  the  least 
overstated. 

Add  to  all  this  the  inefficiency  of  wrong  use  of 
labor,  the  inefficiency  shown  in  the  selection  of  labor 
which,  until  very  recently,  prevailed  in  nearly  every 
industry  in  the  country,  and  then  on  top  of  that 
pile  inefficient  labor-conservation — and  it  is  no  won- 
der that  we  have  had  to  add  fifty  per  cent  tariff 
duties  to  foreign-made  goods  to  keep  our  factories 
running. 


SELECTING  AND  CONSERVING  LABOR        159 

Selecting  Labor. — It  may  seem  trite  to  say  again 
that  the  employer  should  exercise  care  in  selecting 
his  labor.  But  most  great  truths  are  simple.  It  used 
to  be  said  that  the  great  strength  of  Lincoln  lay  in 
his  ability  to  '* think  through"  a  complicated  ques- 
tion and  then  reduce  his  conclusion  to  a  few  simple 
words  which  even  the  most  unlettered  could  under- 
stand. 

Frederick  Palmer,  in  his  last  book  on  the  great 
European  war,  makes  these  statements: 

One  can  never  make  the  mistake  of  too  much  simplification 
in  the  complicated  detail  of  modern  tactics,  where  the  diffi- 
culty is  always  to  see  the  forest  for  the  trees.  The  higher 
you  go  in  the  command,  the  simpler  seem  the  plans  which 
by  direct  and  comprehensive  strokes  conceal  the  detail  which 
is  delegated  down  through  the  different  units. 

So  it  is  with  business  today;  one  half  of  industrial 
efficiency  consists  in  the  exercise  of  care  in  the  selec- 
tion of  labor. 

The  tendency  has  been — just  as  in  the  case  of  the 
executive  described  in  a  previous  chapter — to  take 
what  comes  rather  than  to  go  after  what  is  needed. 
A  great  many  heads  of  corporations  will  not  admit 
this.  They  will  tell  you  that  they  use  a  great  deal 
of  care  in  selecting  their  employees;  just  as  six  out 
of  twelve  concerns,  operating  without  an  organized 
employment  department,  in  reply  to  a  recent  ques- 
tionaire  stated  that  their  men  were  hired  by  the 
superintendents.  The  average  number  of  workers  in 
these  six  concerns  was  840.  If  you  figure  a  labor 
turnover  of  400  per  cent,  which  is  not  at  all  unsual 
in  this  day  and  age,  each  one  of  these  superintend- 


160          EXECUTIVE  STATISTICAL  CONTROL 

ents  hired  eleven  men  each  working  day.  Even  if 
he  devoted  no  more  than  fifteen  minutes  to  each  appli- 
cant, he  spent  nearly  three  hours  a  day  (or  at  least 
a  third  of  his  time)  on  the  men  he  selected,  to  say 
nothing  of  the  time  he  spent  interviewing  the  men 
he  rejected.  If  you  accept  the  manufacturers'  state- 
ments as  accurate,  the  least  you  can  do  is  to  sym- 
pathize with  their  superintendents! 

The  Problem  Underestimated. — The  first  step  in  in- 
tensive labor  development  is  identical  in  principle 
with  that  in  the  old-time  receipt  for  "jugged"  hare — 
"First  catch  your  hare."  In  other  words — first,  get 
your  labor.  The  average  manufacturer  may  maintain 
that  it  is  difficult  to  exercise  discrimination  in  the 
selection  of  his  labor  when  he  cannot  get  enough  of 
any  sort  to  enable  him  to  run  his  factory  to  capacity. 
He  might  as  well  argue  that  a  man  drowning  in  deep 
water  would  not  have  been  more  likely  to  save  him- 
self if  he  had  acquired  the  art  of  swimming  in  shal- 
low water.  The  time  to  learn  to  swim  is  when  cir- 
cumstances are  favorable.  If  a  man  does  that,  he  will 
have  a  chance  when  the  boat  upsets  in  the  middle 
of  the  stream.  Just  so  in  building  up  his  labor  to  re- 
sist the  exodus  to  the  farms  in  the  harvest  season,  or 
to  the  munition  plants  in  time  of  war,  the  man  who 
has  hand-picked  his  labor  before  the  crops  are  ripe 
or  before  wages  soar  skyward,  will  have  a  greater 
chance  of  preserving  his  organization  than  the  man 
who  "takes  what  comes  to  him"  and  consequently 
finds  himself  totally  unprepared  for  the  emergency. 

If  the  average  manufacturer  would  exercise  one 
quarter  of  the  care  in  selecting  his  labor  that  he  does 


SELECTING  AND  CONSERVING  LABOR        161 

in  purchasing  his  material  and  supplies,  we  would 
hear  a  great  deal  less  about  labor  troubles.  Nearly 
every  business  of  considerable  size  has  a  purchasing- 
department,  but  until  recently  an  employment  de- 
partment was  a  rarity.  Men  speak  with  admiration 
of  "a  shrewd  buyer."  But  how  often  do  we  hear  of 
a  shrewd  hirer  of  men?  And  yet  labor  cost  is  more 
than  half  the  production  cost  in  countless  corpora- 
tions. Occasionally  some  man  in  the  forefront  of 
business  progress,  like  Stone  or  Armour,  will  have 
something  to  say  about  the  selection  of  employees, 
but  more  often  it  is  the  captain  of  industry's  pet 
theory  of  selecting  assistants  which  is  discussed 
rather  than  the  selection  of  labor  in  general.  The 
rule  of  one  such  for  success  was,  "Select  your  office 
boys,  and  your  managers  will  select  themselves,"  but 
such  a  rule  applies  to  only  a  small  proportion  of  the 
men  hired  in  any  sizeable  industry  and  may  not  ex- 
tend to  the  large  laboring  element. 

Perhaps  it  is  our  inherited  Yankee  trading  instinct 
which  makes  us  place  undue  emphasis  upon  the  pur- 
chase of  material.  More  likely  the  error  has  been 
due  to  the  fact  that  the  gain  secured  by  beating  down 
the  price  of  a  material  two  or  three  cents  is  easily 
computed,  while  the  gain  from  spending  two  or  three 
hundred  dollars  a  month  in  order  to  purchase  labor 
efficiently  is  less  easily  seen.  Furthermore,  specifica- 
tions covering  material  are  prepared  with  greater  fa- 
cility and  the  purchased  units  are  more  easily  com- 
pared with  the  standard  when  the  commodity  belongs 
to  the  mineral  or  vegetable  kingdom  than  when  it 
belongs  to  the  animal  kingdom. 


162          EXECUTIVE  STATISTICAL  CONTROL 

Common-Sense  Tests. — I  hold  no  brief  for  those 
who  advocate  the  selection  of  labor  by  phrenological 
test  or  according  to  the  color  of  the  hair.  There  are 
certain  common-sense  tests,  however,  which  are  of 
great  value.  If  you  are  selecting  employees  for  work 
where  quickness  is  essential,  it  is  possible  to  devise 
tests  under  which  candidates  will  show  their  natural 
aptitude  in  this  respect.  Ordinarily  this  is  work  for 
the  trained  engineer,  although  a  certain  amount  of 
selection  along  common-sense  lines  is  possible  if  its 
necessity  is  kept  in  mind  continually.  Only  a  fool 
would  pick  out  a  brewery  horse  to  go  fox-hunting 
with,  and  the  man  who  is  doing  the  hiring  can  avoid 
selecting  human  percherons  and  St.  Bernards  where 
Arabians  and  fox  terriers  are  needed. 

For  instance,  there  are  definite  standards  for  speed 
in  stenography.  Any  girl  who  has  any  business  what- 
soever to  attempt  to  sell  her  services,  even,  as  a  nov- 
ice, should  write  forty  to  fifty  words  a  minute  from 
her  notes — and  yet  I  suppose  that  not  ten  per  cent 
of  the  thousands  of  girls  who  are  hired  every  year 
are  ever  timed.  The  result  is  thousands  of  hours 
lost  by  expensive  executives,  in  training  girls  to  a 
particular  job  for  two  or  three  weeks,  only  to 
find  at  last  that  a  mistake  in  selection  has  been 
made.  Ten  minutes  spent  in  the  first  place  with  a 
stop  watch,  and  the  candidate  would  have  been  sent 
back  to  the  business  college — which  would  have  been 
best  for  the  girl  and  best  for  the  public.  Tests  quite 
as  sensible  have  been  devised  for  other  varieties  of 
activities — the  difficulty  has  been  to  get  employers 
to  "bother  with  such  folderol." 


SELECTING  AND  CONSERVING  LABOR        163 

Employment  Manager  Needed. — If  the  employer  of 
more  workers  than  he  can  know  personally  would 
examine  the  situation  thoroughly  and  analytically,  he 
would  find  that  he  could  not  afford  to  be  without 
an  employment  manager,  or  at  least  he  would  realize 
that  he  needs  a  man  who  can  combine  employment 
management  with  other  duties.  Consider  for  a  mo- 
ment the  prevailing  conditions  in  the  industry  em- 
ploying 840  men,  mentioned  earlier  in  the  chapter. 
Any  one  who  knows  anything  about  those  concerns 
which  state  that  "the  superintendent  does  all  the 
hiring,"  knows  perfectly  well  that  that  overworked 
individual  isn't  giving  any  three  hours  a  day  to  exam- 
ining the  eleven  successful  applicants,  and  another 
six  hours  to  examining  the  twenty-two  unsuccessful 
applicants,  in  addition  to  the  time  he  gives  to  his 
regular  duties.  (I  assume  that  only  one  out  of  three 
men  is  fitted  to  the  particular  job  open  on  the  day 
in  question.) 

What  generally  happens  is  this:  Somewhere  about 
the  front  door  of  the  factory  is  a  timekeeper,  or  some 
other  overworked  clerk,  who  is  principally  interested 
in  completing  his  daily  stint  of  figuring  and  getting 
down  to  the  poolroom,  or  the  movies,  or  wherever 
else  his  real  interest  in  life  lies.  As  men  apply  for 
work  he  grunts  at  them,  if  they  are  few — or  if  they 
are  many  and  interrupt  his  work,  he  hangs  out  a 
sign  "No  men  wanted." 

Pretty  soon  the  superintendent  returns  from  his 
morning  round  and  observes  that  Bill  or  Pete  needs 
a  man  in  his  department.  The  next  two-legged  speci- 
men that  is  able  to  drag  itself  up  to  the  door  is  sent 


164         EXECUTIVE  STATISTICAL  CONTROL 

out  in  the  works  to  hunt  up  Bill  or  Pete.  As  the 
candidate  wanders  about  the  plant  in  search  of  the 
vaguely  described  foreman,  he  furnishes  a  pleasant 
diversion  for  the  other  employees  as  he  makes  in- 
quiry of  countless  workers,  who  are  only  too  glad 
to  stop  and  chat  for  a  few  minutes.  Eventually  he 
reaches  Pete  or  Bill.  Pete  is  very  busy  and  doesn't 
interview  our  human  derelict — merely  sets  him  to 
work — or  else  he  spends  ten  or  fifteen  minutes,  which 
he  should  have  devoted  to  something  else,  talking  to 
the  wanderer  in  a  desultory  and  pointless  manner. 
Pete  is  a  good  foreman,  but  he  is  not  a  trained  em- 
ployment investigator.  On  the  other  hand,  if  our 
pilgrim  is  not  hired  the  performance  just  described 
must  be  repeated,  until  a  man  arrives  who  suits  Pete's 
fancy  and  mood  at  that  particular  moment. 

If  labor  is  scarce  and  the  "No  men  wanted"  sign 
has  given  way  to  a  different  placard,  reinforced  by 
newspaper  advertising  and  extra  money  given  to  the 
employment  agencies,  we  generally  find  Pete  and  Bill 
out  scouting  for  labor  at  such  times  as  they  are  not 
frantically  endeavoring  to  "make  both  ends  meet," 
as  it  were,  in  their  department.  In  any  event,  some- 
body is  devoting  time  to  hiring  new  employees. 
Whoever  is  doing  so  is  taking  time  from  his  regular 
duties  and  is  doing  work  for  which  he  is  neither 
trained  nor  fitted.  The  results,  therefore,  must  nec- 
essarily be  more  expensive  to  the  company  than  if 
the  work  were  performed  by  a  trained  man.  The 
employer  pays — whether  he  knows  it  or  not — and  the 
more  the  defect  is  covered  up,  the  more  it  costs  in 
the  end. 


SELECTING  AND  CONSERVING  LABOR        165 

Importance  of  the  Position. — The  important  thing 
is  not  so  much  to  have  an  elaborate  employment  de- 
partment, organized  along  set  lines,  as  it  is  to  devise 
some  system  which  is  simple  and  systematic  and 
which  fits  the  particular  case  under  consideration. 
It  may  be  that  the  business  is  large  enough  to  jus- 
tify engaging  an  employment  manager  with  his  staff. 
Concerns  employing  four  and  five  hundred  men  do 
feel  that  they  can  save  money  by  having  an  employ- 
ment manager  with  a  clerk  and  a  stenographer.  If 
the  business  is  too  small  for  that,  however,  the  chief 
dispatcher,  or  even  the  timekeeper,  may  add  the  work 
of  interviewing  applicants  to  his  other  duties.  Such 
work  is  sometimes  advantageously  combined  with 
welfare  work.  The  exact  title  of  the  man  who  does 
the  work  is  of  no  consequence.  The  important  require- 
ments are  a  suitable  temperament,  real  interest  in  the 
personality  of  the  workers,  tact  sufficient  to  draw 
out  the  man  being  interviewed,  a  sense  of  justice,  and 
a  fair  share  of  that  instinct  which  is  known  as  "the 
ability  to  read  character. "  The  type  is  quite  distinct 
from  the  foreman  or  superintendent  type,  and  for  that 
reason  it  is  better  not  to  combine  employment  with 
executive  work. 

It  is  important  that  the  right  sort  of  man  be  se- 
lected, not  only  in  order  that  the  work  may  be  done 
effectively,  but  also  because  the  only  way  the  rank 
and  file  of  our  modern  industrial  armies  have  of  siz- 
ing up  the  men  at  the  head  of  our  great  corporations 
is  by  judging  such  of  the  great  man's  representatives 
as  they  come  in  contact  with.  Their  first  impression 
is  gathered  from  their  interview  with  whoever  hires 


166          EXECUTIVE  STATISTICAL  CONTROL 

them,  and  their  last  from  the  man  who  finds  out 
why  they  are  leaving.  The  first  impression  is  import- 
ant, as  it  is  likely  to  color  their  future  relations  with 
a  company,  and  their  last  because  the  name  they  give 
a  company  in  the  labor  world  often  depends  upon  it. 

Suppose  the  work  of  hiring  new  employees  is  placed 
under  the  control  of  the  chief  dispatcher  in  a  busi- 
ness which  is  organized  along  modern  lines,  but  which 
is  not  large  enough  to  afford  a  regular  employment 
department.  The  dispatch  office  is  always  more  or 
less  a  clearing  house  for  labor,  taking  care  of  the 
man  not  needed  by  one  department  and  furnishing 
an  extra  man  to  another.  Besides,  new  men  must 
be  registered  and  numbered  at  the  dispatch  office, 
and  men  leaving  must  give  up  their  numbers,  ring 
out,  and  secure  a  time  certificate  in  order  to  be  paid 
off.  If  such  an  arrangement  does  not  work  out  to 
advantage,  perhaps  the  work  can  be  taken  over  by 
the  timekeeper's  office,  although  that  department  is 
not  usually  located  as  close  to  the  firing  line,  and 
therefore  is  not  possessed  of  as  much  exact  informa- 
tion in  regard  to  individual  workmen  as  the  dispatch 
office. 

Questioning  the  Men  Tactfully.— The  first  duty  of 
the  man  selected  is  to  take  stock  of  the  labor  on  hand. 
For  this  purpose  a  simple  register  card  has  been 
devised.  The  information  must  be  secured  tactfully, 
as  the  following  extract  from  a  newspaper  in  a  large 
city  shows: 

More  than  200  ornamental  glass  workers  walked  out  on 

strike  yesterday  morning  at  various  factories  of  the  

Co.  when  they  refused  to  sign  "efficiency  cards"  giving  their 
social  condition,  names,  and  other  personal  data. 


SELECTING  AND  CONSERVING  LABOR        167 


PREVIOUS    EMPLOYMEN 


ENT 


TEMPORARY 


MONTHS   EMPLOYED 


FIG.  20.      APPLICATION  CARD 

Laboring  men  are  suspicious  of  any  innovation — es- 
pecially workmen  from  countries  where  registration 
means  police  surveillance.  A  simple  explanation 
should  therefore  be  made  of  the  possible  value  to  the 
employee  of  the  information  asked.  Mystery  always 
stimulates  the  imagination.  Just  as  the  neighbors 
always  concoct  a  story  to  explain  the  house  with 
the  drawn  blinds,  so  does  the  working  man  suspect 
the  worst  if  no  explanation  is  forthcoming.  The 
widely  prevalent  stories  of  "black  bottles"  kept  to 
finish  undesirable  patients  at  the  hospitals,  and  other 
"romances"  of  a  like  nature  testify  to  this  fact. 

Note  the  card  shown  in  Figure  20,  for  instance. 
If  all  the  questions  are  fired  at  a  man  in  the  curt 
and  rasping  tone  of  the  desk-sergeant  at  a  police 
station,  we  cannot  blame  him  if  he  objects  and  gives 
as  good  as  he  takes.  It  is  unnecessary,  and  at  times 


168          EXECUTIVE  STATISTICAL  CONTROL 

dangerous,  to  ask  a  man  whether  he  is  black  or  white. 
It  is  much  better  to  judge  his  color  and  age,  and 
then  to  make  to  him  simple  statements  like  the  fol- 
lowing: That  his  address  is  desired  in  order  that  his 
family  may  be  reached  in  case  of  possible  sickness  or 
injury;  that  his  birthplace  is  desired,  together  with 
information  in  regard  to  naturalization  and  educa- 
tion, in  order  that  the  local  Y.  M.  C.  A.,  or  other 
organization  interested  in  his  welfare  or  in  his  event- 
ually becoming  an  American  citizen,  may  get  in  touch 
with  him;  that  the  questions  in  regard  to  dependents 
is  prompted  by  a  desire  to  favor  in  slack  times  those 
who  need  work  the  most;  that  the  company  desires 
information  in  regard  to  his  previous  experience  in 
order  to  be  able  to  place  him  to  its  own  and  his  ad- 
vantage, and  so  on.  The  day  has  gone  by  when  the 
boss  could  know  every  one  of  his  employees  intimately 
and  personally.  The  next  best  thing  is  a  registration 
card,  which  gives  the  boss  certain  vital  facts  in  re- 
gard to  each  man,  and  allows  him  to  examine  sta- 
tistics and  from  them  and  from  his  broad  knowledge 
of  human  nature  to  issue  certain  edicts  that  will  bene- 
fit the  employee  as  well  as  the  employer. 

Applying  the  Golden  Rule. — The  man  of  broad  and 
deep  experience  knows  that  there  is  such  a  thing  as 
the  higher  selfishness.  "Honesty  is  the  best  policy" 
is  one  of  its  lower  laws.  It  is  the  law  which,  though 
we  may  not  realize  it,  makes  us  courteous  in  public. 
Imagine  society  with  every  man  elbowing  his  neigh- 
bor at  every  street-car  stop  and  congestion  point. 
Roughs  who  have  not  learned  this  law  are  taught  it 
in  summary  fashion.  "Live  and  let  live"  is  an  old- 


SELECTING  AND  CONSERVING  LABOR       169 

fashioned  expression  of  it.  The  far-sighted  employer 
treats  his  labor  well  for  his  own  sake.  The  intelli- 
gent laborer  plays  fair  with  his  boss  and  is  benefited 
in  the  end. 

In  one  form  or  other,  you  may  be  sure,  the  em- 
ployer who  elbows  his  employee  ruthlessly  aside, 
sooner  or  later  receives  the  bloody  nose  just  as  the 
rough  on  the  street-car  does;  and  the  working  man 
who  does  not  realize  that  his  own  and  his  employer's 
interests  are  eggs  in  the  same  basket,  sooner  or  later 
finds  that  he  has  made  a  mistake  that  brings  bitter 
results.  The  more  thorough  the  understanding  be- 
tween employer  and  employee,  and  the  greater  their 
personal  knowledge  of  each  other,  the  better  for  both. 
Neither  can  exist  without  the  other,  and  the  sooner 
each  has  this  fact  brought  home  to  him  directly  and 
personally,  the  better  for  both. 

"Welfare  work  in  reason  and  " Safety  First"  move- 
ments are  more  than  self-supporting.  But  in  welfare 
work  care  must  be  taken  that  the  worker's  independ- 
ence is  not  interfered  with.  There  is  a  great  dif- 
ference between  interference  and  helpfulness  when 
applied  to  another  man's  mode  of  Kving:  the  one  is 
tolerated  only  through  fear  or  favor  and  is  greatly 
resented,  the  other  takes  the  form  of  a  kindly  sug- 
gestion and  is  usually  gratefully  received.  Personal 
cleanliness  and  decency  can,  of  course,  be  made  com- 
pulsory, but  to  go  beyond  that  requires  tact. 

Filling  Out  Register  Cards.— The  following  Stand- 
ard Practice  Eecommendation  which  has  been  handed 
to  clients  in  several  instances  covers  filling  out  regis- 
ter cards  in  detail: 


170         EXECUTIVE  STATISTICAL  CONTROL 

STANDARD  PRACTICE  RECOMMENDATION. 

WHEN  PBOPEKLY  COUNTERSIGNED  THIS  RECOMMENDATION  BECOMES  A 

WRITTEN  ORDER  TO  ALL  WHO  RECEIVE  A  COPY. 

SUBJECT:     STANDARD  PRACTICE  FOR  FILLING  OUT  REGISTER 

CARDS. 

In  order  to  make  clear  exactly  what  it  is  desired  to  have  the 
Chief  Dispatcher  enter  upon  the  Employment  Register  Cards, 
the  following  Standard  Practice  Instructions  have  been  pre- 
pared : 

Register  Card. 

1 — At  time  of  interview  enter  applicant's  full  name,  ad- 
dress and  rate.  Zone  can  be  filled  in  later. 

For  the  present,  zones  are  as  follows : 

W  — 15 15  minutes  or  less  walk  from  work  place. 

C  — 15 15  minutes  or  more  ride  to  car  from  work  place — up  to 

C  — 30 30  minutes  or  more  ride  on  the  car  from  work  place — 

up  to 

C  — 45- 45  minutes  or  more  ride  on  the  car  from  work  place — 

up  to 
C  —  60 60  minutes  or  more  ride  on  the  car  from  work  place. 

2 — Under  Nationality  should  be  entered  the  country  and 
the  city,  state  or  province  in  which  the  applicant  was  born, 
together  with  his  apparent  age.  Tact  should  be  exercised  in 
securing  this  information.  The  nationality  can  be  deter- 
mined by  the  answer  as  to  state  or  province  of  birth,  and  the 
age  can  be  judged  within  10  years,  which  is  close  enough. 

3 — Under  Family  should  be  entered  information  in  regard 
to  dependents.  In  case  objection  is  expressed  to  answering 
this  question,  it  should  be  explained  at  once  that  the  infor- 
mation is  desired  for  the  workmen's  good,  as  those  with 
families  would  naturally  be  favored  in  slack  times. 

4 — Under  Experience  enter  the  exact  sort  of  work  the  man 
has  done  in  his  last  two  or  three  jobs.  It  is  better  for  him 
and  better  for  the  Company  that  he  do  something  similar  to 
what  he  has  been  doing,  wherever  possible. 

5 — Under  Previous  Employment  give  names  of  last  two  or 
three  concerns  for  which  applicant  has  worked. 


SELECTING  AND  CONSERVING  LABOR        171 

6 — Enter  as  much  detail  as  possible  in  regard  to  each  ap- 
plicant's Education.  If  he  has  some  education  his  chance  of 
advancement  is  better,  and  if  he  has  none  there  are  local 
organizations  which  can  help  him. 

7 — Under  Employed  as  enter  the  job  to  which  he  is  first  as- 
signed. 

8 — The  entry  under  Date  and  Time  Employed  is  obvious. 

9 — Permanent  or  Temporary  should  be  checked  according  to 
the  interviewers'  judgment.  Construction  work  and  repair 
work  is  often  known  to  be  temporary.  Work  in  the  regular 
manufacturing  departments  will  be  assumed  to  be  perma- 
nent. 

10 — Under  Date  Left  and  Reason  should  be  entered  from  the 
Pay  Off  Slip  the  date  and  time  the  connection  is  severed  and 
the  principal  reason"  for  leaving. 

Card  properly  filled  out  should  appear  as  shown  in  Figure 
20.  These  cards  are  to  be  retained  at  the  Dispatch  Office  and 
filed  alphabetically  in  the  Drawer  marked  "Employed." 
When  a  man  leaves,  his  card  should  be  transferred  to  the 
"Left"  drawer.  No  cards  shall  be  filed  until  initialed  by 
the  Timekeeper  who  shall  call  at  the  Dispatch  Office  at  speci- 
fied times,  at  least  once  a  day.  The  Timekeeper  is  not 
authorized  to  enter  any  names  on  the  payroll  without  the 
order  which  a  properly  filled-in  Register  Card  signed  by  the 
Chief  Dispatcher  constitutes.  Violations  of  this  rule  must  be 
reported  at  once. 

Pay-Off  Slip. 

This  pink  slip  which  serves  as  an  order  upon  the  Time- 
keeper to  remove  from  the  payroll  and  to  pay  off  an  em- 
ployee who  is  leaving,  is  to  be  made  out  by  the  Chief  Dis- 
patcher. The  Timekeeper  is  not  authorized  to  pay  off  any 
one  whatsoever  unless  such  an  order  is  presented  properly 
signed. 

The  Pay  Off  Slip  (Figure  21)  is  to  be  made  out  in  duplicate, 
by  means  of  a  carbon,  down  to  the  space  marked  "Reason." 
The  original  is  then  torn  off  and  initialed  by  the  Chief  Dis- 
patcher, to  serve  as  the  employee's  order  upon  the  Time- 
keeper for  his  pay. 


172          EXECUTIVE  STATISTICAL  CONTROL 

Before  this  is  given  him,  however,  a  full  explanation  of 
just  why  he  is  leaving  should  be  secured,  if  possible,  and 
entered  on  the  second  sheet. 


ORIGINAL 


TO  THE  TIME   KEEPER:- 


PLEASE    PAY   OFF   AND    REMOVE  FROM    THE    PAYROLL:- 


Tony  Italiano 


P.   P. 


DATE    QUIT    WORK 

5-28 


HWP 


DUPLICATE 

TO  THE  TIME   KEEPER:- 

PLEASE   PAY   OFF  AND   REMOVE   FROM 

THE    PAYROLL: 

Tony  Italiano 

DEPARTMENT    NO.                                                                                                     MA 
P.P. 

2300 

WORK 

Coal  Passer, 

DATE    QUIT    WORK 

3-28 

...7           T'ME  3. 

4 

Didn't   like   job   -   could  get    .24  at 

Scullin's.      Tried   to   persuade 

him   to  wait 

for 

job  as  Kiln  Fireman. 

HV.T. 

F-1»                                                                                                                                                                                    CHIEF     DESPATCHES 

PIG.  21.      ORIGINAL  AND  DUPLICATE  OF  PAYOFF  SLIP 


SELECTING  AND  CONSERVING  LABOR        173 

This  will  of  course  require  tact  and  judgment,  especially 
in  the  case  the  man  is  quitting  after  violent  disagreement 
with  some  one  in  authority.  Whenever  the  circumstances 
permit,  an  effort  should  be  made,  however,  to  reach  the  real 
cause  of  the  man's  leaving.  Where  this  is  impossible  the 
reason  given  should  be  written  in  quotation  marks.  Later, 
before  the  Register  Card  is  transferred  from  the  "em- 
ployed" to  the  "left"  drawer  the  reason  for  leaving  should  be 
condensed  to  a  word  or  two  and  entered  in  the  space  provided. 
The  carbon  copy  should  be  attached  to  the  Register  Card  by 
a  clip  before  filing. 

If  there  is  any  reason  at  any  time  why  these  instructions 
cannot  be  carried  out  to  the  letter,  notify  the  Industrial 
Engineering  Department  at  once. 

Yours  very  truly, 

Engineer. 
DTF:G. 
Copies  to  L.  T.  V. 

R.  S.  P. 

T.  L.  Q. 

Supt. 

C.  Desp. 

T.  K. 

Reduction  of  Labor  Turnover. — The  cost  of  break- 
ing in  a  new  employee  has  been  variously  estimated 
at  from  $40  to  $120  a  man.  Any  employer  who  doubts 
this  need  only  recall  his  own  early  blunders  to  be 
convinced.  One  man — an  engineer  pre-eminent  in  his 
line — who  was  at  first  inclined  to  doubt,  finally  re- 
called his  first  job,  an  apprenticeship  in  a  power 
plant.  "Yes,"  he  said,*" come  to  think  of  it,  I  guess 
I  did  cost  my  boss  something.  The  first  week  I  was 
there,  I  turned  a  valve  the  wrong  way  and  let  fifteen 
hundred  dollars  worth  of  oil  run  into  the  river.  I 
guess  you're  right." 


174          EXECUTIVE  STATISTICAL  CONTROL 

Suppose  a  factory  employs  800  men  when  running 
to  capacity.  A  labor  turnover  of  400  per  cent  has 
not  been  at  all  uncommon  in  some  years.  Suppose  it 
costs  only  $50  to  break  in  each  new  employee.  Then 
this  turnover,  which  involves  putting  on  3200  men 
during  the  year  to  maintain  the  normal  working  force 
of  800  men,  is  costing  the  company — in  broken  tools, 
spoiled  material,  extra  supervision  from  foremen  and 
fellow-workmen,  loss  of  output  and  delayed  orders — 
$160,000  per  year! 

If  intensive  labor  development  will  reduce  this 
labor  turnover  to  200  per  cent,  the  saving  to  the 
company  will  be  $80,000 — an  amount  certainly  worth 
going  after.  The  reduction  of  labor  turnover  is  com- 
paratively easy  if  a  company  is  willing  to  adopt  the 
Henry  Ford  plan  and  pay  double  or  triple  the  pre- 
vailing wage  rate.  But  the  engineer  or  executive 
who  would  have  the  temerity  to  recommend  such  a 
course  to  his  company  would  today  risk  his  popular- 
ity, to  say  the  least.  The  only  course  open  to  him, 
then,  under  ordinary  circumstances,  is  to  devise  ways 
and  means  to  secure  for  those  who  have  entrusted 
their  capital  to  him  a  low  labor  turnover  at  the  least 
possible  expense.  This  means  a  careful  analysis  of 
the  situation  and  the  formualtion  of  a  labor  policy 
which  must  be  adhered  to  in  spite  of  temporary  dis- 
couragements. 

Some  Important  Axioms. — After  the  company's  em- 
ployees have  been  registered  upon  the  cards  and  the 
information  has  been  tabulated,  the  axioms  almost 
formulate  themselves.  Notice  the  anwsers  given  to 
the  questions  on  the  Register  card,  then: 


SELECTING  AND  CONSERVING  LABOR        175 

1.  Other   things   being   equal,   hire   and   also    en- 
deavor to  retain  in  slack  times  the  man  who  has  a 
family.    He  needs  steady  work  more  than  the  floater, 
he  will  stay  when  the  other  drifts  away,  and  he  is 
less  likely  to  be  frequently  absent. 

2.  Give  preference  to  the  man  who  lives  close  to 
the  factory.     If  he  can  walk  and  save  ten  cents  a 
day — $30  a  year — he  will  remain  with  you  instead 
of  going  elsewhere  on  the  first  rumor  of  a  five-cent 
raise.    If  he  lives  on  the  other  side  of  town,  he  may 
be  taking  a  job  with  you  until  he  can  get  one  closer 
home.     The  working  man  doesn't  enjoy  getting  up 
an  hour  earlier  just  to  spent  it  in  a  crowded  street 
car,  and  getting  home  late  for  dinner,  any  more  than 
the  boss  would.     Men  who  live  out  in  the  country 
for  the  sake  of  the  health  of  their  families  are  often 
an  exception  to  this  rule,  and  are  generally  very  de- 
sirable workmen.    It  is  best,  however,  to  select  sub- 
urbanites who  live  on  your  side  of  town,  where  pos- 
sible. 

3.  The  province  or  state  a  man  comes  from  often 
determines  his  adaptability  to  certain  sorts  of  work. 
It  has  been  said  that  the  Pullman  Company  picks  its 
star  porters  almost  from  a  certain  county  in  a  certain 
Southern  state.    Italians  from  Lombardi  are  entirely 
different  in  physique  and  in  temperament  from  those 
born  in  Terramina  or  in  Palermo.    Ambitious  negroes 
who  have  saved  sufficient  to  bring  their  families  north 
are  quite  different  from  the  "coke-ridden"  floaters  of 
a  great  northern  city.     A  colored  gentleman  said  to 
me  only  a  few  days  ago  "Ah  did'n  like  dat  place.  All 
coons  look  alike  to  dat  boss.    He  doan'  know  how  to 


176          EXECUTIVE  STATISTICAL  CONTROL 

treat  a  good  nigger."  Any  man  who  has  tried  to  put 
Turks  and  Greeks  on  the  same  crew,  or  to  put  an 
Irish  laborer  under  an  Italian  foreman,  won't  make 
the  same  mistake  again.  The  only  way  the  finer 
points  of  differentiation — which  are  the  most  import- 
ant— between  the  various  nationalities  and  between 
men  from  various  sections  of  the  same  country  can 
be  learned,  is  to  study  them.  Such  study  without 
knowledge  of  the  provinces  from  which  your  men 
come,  is  obviously  out  of  the  question.  The  man  to 
whom  Bulgarians  and  Koumanians  are  all  "Roosh- 
ians"  is  obviously  at  a  disadvantage  in  selecting  men 
to  become  ultimately  a  co-ordinate  and  permanent 
working  force.  Exact  knowledge,  as  well  as  time 
and  patience,  is  necessary  to  complete  success. 

4.  Men  are  usually  better  satisfied  to  do  work  to 
which  they  are  accustomed.    If  you  know  what  a  man 
can  do  you  are  not  only  more  likely  to  keep  him,  but 
you  are  less  likely  to  have  it  cost  you  so  much  to 
break  him  in.    If  he  is  versatile  in  your  line  you  are 
insuring,  to  some  extent,  several  jobs  by  hiring  him. 

5.  Information  in  regard  to  previous  employment 
gives  you  a  certain  line  on  his  training,  and  in  case 
of  need  furnishes  a  reference  as   to   character   and 
ability. 

6.  Information  as  to  naturalization  and  education 
leads  to  the  more  remote,  but  just  as  sure,  benefits 
which  are  gained  through  what  is  generally  known 
as  welfare  work.     The  National  Chamber  of  Com- 
merce has  recently  asked  that  even  more  questions 
of  this  sort  be  asked  to  awake  the  foreigner's  interest 
in  American  citizenship.     In  the  larger  cities  there 


SELECTING  AND  CONSERVING  LABOR        177 

are  Y.  M.  C.  A.  and  settlement  workers  who  are  only 
too  glad  to  look  up  the  ignorant  and  to  instruct  them. 
A  great  many  labor  troubles  are  due  to  the  alien's 
misconception  of  the  American  employer  and  of 
American  institutions,  and  nothing  is  so  conducive  to 
a  clearer  understanding  than  a  knowledge  of  Eng- 
lish and  an  interest  in  citizenship. 

7.  Information  as  to  why  a  man  quits  is  invalu- 
able. It  shows  just  what  wages  are  tempting  the 
force  away,  and  why  employees  are  leaving  certain 
departments.  One  employment  man  said  to  me  a 
while  ago,  "Oh,  I  never  listen  to  their  hard  luck 
stories."  He  little  knew  how  he  was  throwing  away 
one  of  his  most  valuable  assets  as  an  employer,  an 
asset  that  might  have  led  to  the  discovery  of  graft- 
ing foremen  and  of  petty  tyranny  costing  the  com- 
pany thousands  a  year  because  men  "split  the  swag" 
and  held  back  on  work  out  of  revenge — he  might  even 
have  prevented  serious  labor  troubles. 

Reaching  Desirable  Workers. — As  soon  as  data  can 
be  compiled  covering  a  period  of  a  number  of  months, 
it  should  be  arranged  graphicly  for  analysis.  Before 
I  take  up  that  feature,  however,  I  wish  to  emphasize 
one  other  point — that  of  laying  the  foundation  for  a 
reliable  source  of  labor  supply.  The  men  you  find 
hanging  around  labor  agencies  and  saloons  during 
periods  of  labor  shortage  are  not  the  men  you  want 
when  you  are  in  need  of  workmen.  If  you  have  a 
list  of  married  men  living  near  your  plant  whom  you 
have  registered  as  desirable,  at  a  time  you  had  no 
work  for  them,  you  are  quite  likely  to  be  able  to  re- 
plenish your  force  greatly  to  your  own  and  to  their 


178          EXECUTIVE  STATISTICAL  CONTROL 

advantage  if  you  have  means  of  getting  in  touch  with 
them.  The  following  Standard  Practice  Recommen- 
dation illustrates  one  means  of  accomplishing  this: 

STANDARD  PRACTICE  RECOMMENDATION. 

WHEN   PBOPERLY   COUNTERSIGNED  THIS   RECOMMENDATION   BECOMES   A 
WRITTEN   ORDER   TO    ALL    WHO  RECEIVE   A    COPY. 

SUBJECT  :    WAITING  LIST. 

Whenever  there  are  more  applications  for  work  than  posi- 
tions open,  it  is  a  good  plan  to  list  the  names  and  addresses 
of  applicants  so  that  the  search  for  labor  may  be  made  in  a 
definite  direction  when  men  are  needed.  A  list  of  applicants 
to  choose  from  also  makes  it  possible  for  a  company  to  select 
the  most  desirable  men  and  the  men  best  fitted  to  the  posi- 
tions open. 

At  the  present  time  more  men  are  applying  for  work  than 
are  needed.  We,  therefore,  recommend  that  the  informa- 
tion usually  entered  at  the  Dispatch  Office  upon  a  Register 
Card  (Figure  20)  when  a  man  is  placed  on  the  payroll  bo 
entered  also  in  the  ease  of  applicants  for  work,  and  that  the 

card  be  stamped  "APPLICATION.     0.  K "and 

placed  on  file. 

Whenever  a  man  is  needed  by  a  foreman  of  any  depart- 
ment, the  application  considered  most  suitable  should  be 
O.  K.  'd  and  the  workman  notified  by  means  of  a  multigraphed 
notice  reading  somewhat  as  follows: 

191.. 

In  answer  to  your  application  for  work  wo  wish  to  say  that 

we  will  be  able  to  use  you  as at  $ . .  per  day.     If 

you  still  desire  a  position  please  call  at  the 

Factory  at  8  a.  m morning. 

NATIONAL  STEEL  Co., 

Per 

Yours  very  truly, 
DTF:G. 
Copies  to  H.  C.  D. 

T.  L.  P.  V. 
P.  C. 
R.  S.  P. 
T.  D.  T. 


SELECTING  AND  CONSERVING  LABOR        179 

A  Useful  Application  Blank.— I  include  here  also 
a  specimen  application  blank  for  technical  or  clerical 
positions,  to  illustrate  the  difference  in  the  sort  of 
knowledge  of  an  applicant  which  it  has  been  found 
desirable  to  have  when  accumulating  a  waiting  list 
of  a  different  sort.  This  has  been  designed  not  only 
in  order  that  the  executive  may  have  certain  data 
on  file,  but  also  that  he  may  judge,  to  some  extent, 
an  applicant's  intelligence  from  the  way  he  answers 
the  questions. 

I  have  known  men  to  put  up  a  very  good  front 
during  the  few  minutes  they  were  interviewed,  take 
the  blank  home  with  them,  and  send  it  back  next 
morning  with  the  startling  information  that  their 
height  was  "5  feet"  and  their  weight  "10  inches." 
Some  men  have  modestly  stated  that  their  complex- 
ion was  "good."  Very  few  notice  the  "time  held" 
feature  of  line  15.  The  question  in  regard  to  over- 
time, line  31,  brings  forth  some  very  illuminating 
answers.  Put  yourself  in  the  frame  of  mind  of  the 
man  to  whose  interest  it  is  to  give  the  answer  desired 
and  yet  who  wants  to  be  honest,  and  see. 

File  No Classification 

Date  191.. 

AMERICAN  WOODWORKING   CORPORATION 

APPLICATION   FOR  TECHNICAL  OR  CLERICAL  POSITION. 

Please  answer  the  following  questions  in  your  own  hand- 
writing : 

1  Name  

2  Address 

3  Nationality Complexion 


180  EXECUTIVE  STATISTICAL  CONTROL 

4  Date  of  Birth,  Month Year Height Weight. . . 

5  Single  or  Married Number  Dependent 

6  Position  preferred 

7  Can  you  speak  any  foreign  language 

8  How  much  time  have  you  lost  by  sickness  during  the  last 

9  five  years  ? 

10  Nature  of  illness  1 

11  In  what  places  have  you  lived  ? 

12  What  position  do  you  now  hold  ? 

13  How  long  have  you  been  so  engaged  ? 

14  Reason  for  seeking  change  ? 

15  Describe  two  previous  positions,  giving  firm  name,  time 

16  held,  general  duties  performed 

17     

18  What  education  have  you  had  ? 

19     

20  What  studies  did  you  enjoy  most? 

21     

22  What  least? 

23  Did  you  work  during  your  vacations  ? What  did 

24  you    do? 

25  What  are  your  favorite  recreations? 

26     

27  What  athletic  sports  have  you  ever  indulged  in  ? 

28  Are  you  studying  now  ? What  ? 

29  Can  you  manage  people  well  ? State  the  evidence  ? 

30     

31  How  do  you  feel  about  working  overtime  ? 

32  Do  you  make  acquaintances  rapidly  ? 

33  State  names,  occupations  and  addresses  of  three  persons 

34  you  care  to  give  as  reference 

35     

The  method  of  bringing  before  the  executive  the 
data  compiled  from  the  labor  register  cards  is  illus- 
trated by  the  following  charts  and  the  explanation  of 
them  that  is  given. 


Total  No.of  each  Nationality  Employed 
No  of  each  of  above  who  are  Naturalized 


FIG.  22.      NATIONALTIES,  NATURALIZATION,  AND  RESIDENCE  OF 

EMPLOYEES 

181 


182          EXECUTIVE  STATISTICAL  CONTROL 

Nationalities,  Naturalization  and  Residence.— The 
chart  in  Figure  22  shows  the  nationalities,  naturali- 
zation and  residence  of  employees  in  a  typical  plant. 
Over  fifty  per  cent  of  the  total  employed  were  Ital- 
ians, and  there  were  about  twice  as  many  of  them  as 
of  the  next  largest  national  group,  the  white  Ameri- 
cans. Colored  labor  amounted  to  about  16  per  cent 
of  the  total  payroll,  and  other  sorts  of  labor  were 
very  scattering.  It  should  be  noted  that  only  about 
12  per  cent  of  the  Italians  were  naturalized.  Such 
an  analysis  might  well  cause  an  employer  uneasiness 
in  times  of  labor  shortage,  since  it  would  indicate 
that  his  destiny  was  largely  in  the  hands  of  a  single 
nationality  whose  representatives  did  not  understand 
English  enough  to  become  American  citizens. 

The  lower  broken  lines  help  to  explain  why  the  Ital- 
ians predominate.  It  will  be  noticed  that  nearly  all 
are  within  fifteen  minutes'  walk  of  the  plant,  while 
about  half  the  Americans  are  an  hour's  ride,  and 
more  than  half  the  negroes  are  half  an  hour's  ride, 
from  the  factory.  The  remedy,  then,  would  seem  to 
be  a  systematic  effort  to  bring  closer  to  the  plant 
the  classes  that  are  second  and  third  in  the  list. 

Length  of  Employment. — The  chart  in  Figure  23 
shows  the  length  of  time  various  nationalities  have 
been  employed  at  a  certain  factory — in  other  words, 
their  relative  staying  power  under  local  conditions. 
It  will  be  noted  that  most  of  the  total  number  of 
men  had  been  employed  within  ninety  days.  The 
American  whites  seem  to  be  the  most  recent  comers  in 
large  numbers,  most  of  those  employed  having  arrived 
within  thirty  days. 


SELECTING  AND  CONSERVING  LABOR   183 


\i\ 


ya 


Ol0306030456789K>lll2l23456789K)lltZI5l4l5  1617  15  192024  JO  45  Si 
^DAYS-" MONTHS " YEARS ' 


TIME  EMPLOYED 


FIG.  23.      LENGTH  OF  EMPLOYMENT  BY  NATIONAL-TIES 

The  majority  of  the  Italians  are  shown  as  having 
been  employed  about  sixty  days.  Seasonal  condi- 
tions seem  to  have  thinned  out  those  Italians  em- 
ployed over  four  months  and  under  twelve  months, 
while  there  is  a  certain  faithful  band,  which  had  been 
with  the  company  from  two  to  fourteen  years. 

The  colored  Americans  are  all  shown  as  recent 
comers.  This  would  seem  to  indicate  that  lack  of 


184          EXECUTIVE  STATISTICAL  CONTROL 

housing  nearby  kept  away  all  except  floaters  in  more 
or  less  desperate  circumstances. 

One  of  the  most  interesting  things  shown  by  this 
chart  is  the  loyalty  of  a  few  old  employees — Ameri- 
can, Italian  and  colored — some  of  whom  had  been 
with  the  company  over  forty  years.  The  general  con- 
clusion would  be  that  an  intensive  study  of  labor 
conditions  would  be  necessary  in  order  to  determine 
the  reasons  why  the  more  recent  employees,  at  the 
time  the  chart  was  prepared,  were  continually  moving 
on.  The  space  in  the  lower  right-hand  corner  of  the 
Register  Card  would  in  time  answer  this  question.  A 
disease  is  more  easily  cured  once  it  is  diagnosed,  and 
the  reasons  why  employees  are  leaving  are  symptoms 
which  soon  lead  to  the  discovery  of  conditions  that 
cannot  be  ignored  if  the  labor  turnover  is  to  be  re- 
duced. 

Monthly  Labor  Turnover. — On  the  chart  in  Figure 
24  a  state  of  affairs  is  illustrated  which  is  not  un- 
common in  industrial  centers — especially  in  factories 
employing  large  quantities  of  unskilled  labor.  It  is 
noticeable  that  the  turnover  amounted  to  only  about 
100  per  cent  until  spring  came.  When  railroad  and 
outdoor  work  began,  the  turnover  jumped  to  nearly 
600  per  cent.  There  it  remained  until  midsummer. 
The  August  harvest  then  shot  it  up  to  700  per  cent, 
after  which  labor  began  to  dig  itself  in  for  the  win- 
ter. In  November,  general  wage  raises  started  the 
turnover  up  again  by  attracting  labor  to  other  factor- 
ies. This  condition  was  met  in  the  factory  under  dis- 
cussion by  a  wage  raise  which  brought  the  turnover 
in  December  down  again. 


SELECTING  AND  CONSERVING  LABOR        185 


/ 

\ 

/ 

\ 

xx^^ 

N. 

/ 

\ 

,/ 

> 

\ 

/ 

\ 

t 

\ 

, 

\ 

/ 

300 

i 

\ 

j 

1 

/ 

M.OOO 

2 

:        o 

C             L 
>            L 

i           0 
J           < 

1   ! 

:  ; 

L  < 

c  : 

i  i 

j      > 

i   = 

1      i 
>      < 

i   ° 

C         o 

i  i 

-      > 
>      c 

>         2 

j 

j 

FIG.  24.      TURNOVER  BY   MONTHS 

In  some  of  the  more  progressive  cities  manufac- 
turers are  comparing  their  labor  turnover  statistics 
through  the  medium  of  local  organizations  formed  to 
promote  mutual  efficiency.  Such  figures  as  the  fol- 
lowing are  most  illuminating. 

IST  YEAR'S 
FIRM.  TURNOVER. 

1—  A  Machine  Tool  Company..  207% 

2—  A  Coke  &  By-Products  Com- 

pany  ..................     89% 

3_A  Steel  Products  Company.  203% 

4  —  An  Automobile  Manufactur- 

ing Company  ........... 

5  —  An   Automobile    Part    Com- 


pany .................. 

6  —  Another     Automobile     Com- 

pany  .................. 

7  —  An  Automobile  Body  &  Spe- 

cialty Company  ......... 


2ND  YEAR'S 

TURNOVER. 

86% 

57% 
159% 

455% 
305% 
129% 
635% 


186          EXECUTIVE  STATISTICAL  CONTROL 

These  figures  cover  a  period  of  expansion  in  the 
motor-car  industry  when  turnovers  were  exceptionally 
high.  The  difference  in  turnover  in  the  same  sort 
of  business  should  be  noticed.  The  fact  that  the  first 
three  firms  reduced  their  turnover  is  significant.  It 
is  a  striking  fact  that  No.  1  was  much  more  success- 
ful than  No.  3,  even  though  their  lines  of  activity  are 
similar. 

An  extraordinarily  high  turnover  usually  means 
that  "something  is  rotten  in  the  State  of  Denmark." 
In  one  firm  that  I  investigated,  a  turnover  fifty  per 
cent  higher  than  in  other  corporations  engaged  in 
similar  work  in  the  same  district,  was  finally  found 
to  be  due  to  the  fact  that  the  superintendent  had  an 
arrangement  with  a  local  employment  agency  where- 
by he  received  twenty-five  cents  for  every  man  hired. 
A  short  time  before  he  departed  rather  hurriedly, 
it  was  found  that  he  was  firing  men  in  batches  sim- 
ply because  of  his  understanding  with  the  agency.  In 
this  way  he  had  raised  the  turnover  enough  above 
what  it  should  have  been,  to  cost  his  company  some- 
thing like  fifty  thousand  dollars  a  year — to  say  noth- 
ing of  the  untold  suffering  he  had  caused  the  fami- 
lies of  employees  unjustly  dismissed — merely  that  he 
might  realize  a  few  paltry  hundreds.  When  the  labor 
turnover  is  abnormal  it  is  imperative  that  the  execu- 
tive investigate.  He  is  unlikely  to  investigate  unless 
the  facts  are  brought  to  his  attention — hence  the  vital 
necessity  of  such  charts  as  we  have  illustrated. 

Departmental  Turnover. — Once  the  executive  has 
determined  that  the  turnover  is  abnormal,  further 
analysis  is  in  order.  The  next  step  is  the  analysis 


SELECTING  AND  CONSERVING  LABOR        187 

of  the  departmental  labor  turnover.  The  presentation 
of  the  facts  does  not,  however,  by  any  means  solve 
the  difficulties.  A  high  rate  of  turnover  in  a  depart- 
ment may  mean,  for  example,  that  the  work  is  par- 
ticularly hard,  that  the  workmen  are  underpaid,  or 
that  they  are  unfairly  treated.  Conversely,  a  low 
turnover  rate  may  mean  high  wages,  an  easy  boss, 
a  department  manned  by  derelicts  who  haven't  enter- 
prise to  move  on,  loyalty  of  old  employees,  or  a  par- 
ticularly fair  and  able  foreman. 

The  local  demand  for  each  sort  of  labor  also  plays 
a  large  part  in  the  rate  of  change,  as  do  working 
conditions  (safety,  light,  air,  temperature,  etc.),  hous- 
ing conditions  (the  opportunity  to  obtain  cheap  rent 
within  walking  distance  among  congenial  neighbors), 
commissary  arrangements  (local  stores,  lunch  rooms, 
boarding  houses,  etc.),  amount  of  welfare  work  (in- 
surance, pensions,  profit-sharing,  baths,  recreation 
fields,  club  houses,  etc.),  and  care  in  selection  (giving 
preference  to  men  with  families,  who  are  not  floaters, 
and  exercising  care  along  the  lines  usually  followed 
by  organized  employment  departments).  Turnover 
statistics,  in  other  words,  merely  disclose  existing 
conditions  and  indicate  the  most  profitable  lines  of 
inquiry. 

In  one  case  that  came  to  my  attention,  a  certain 
rather  small  department  in  a  large  automobile-part 
factory,  when  departmental  statistics  were  prepared, 
showed  a  very  low  turnover.  The  investigator  im- 
mediately hastened  off  to  this  department  to  discover, 
if  possible,  the  means  employed  by  this  super-fore- 
man to  retain  his  men.  The  department  itself  pre- 


188 


EXECUTIVE  STATISTICAL  CONTROL 


sented  no  very  unusual  appearance,  except  that  it  was 
extraordinarily  inefficient  and  extremely  sociable.' 
Something  was  finally  said  to  the  patriarchal  Teuton 
in  charge,  who  cleared  up  the  mystery  as  follows: 
"Veil  you  see,  dey  are  most  of  dem  nephews  or  cous- 
ins of  mine  or  of  my  wife's — all  dot  ain't  sons  of 
mine.  I  got  dem  dier  chobs,  und  I  treats  dem  right, 
und  dey  stays."  The  low  turnover  was  explained, 
but  the  crestfallen  investigator  could  hardly  hold  up 
such  wholesale  nepotism  as  a  shining  light  to  less 
successful  foremen,  in  order  to  illumine  the  way  to  a 
low  labor  turnover. 

Such  a  chart  as  that  which  is  shown  in  Figure  25 
merely  points  the  way  to  further  investigation.  The 
highs  and  lows  should  be  investigated  first.  The 
reasons  given  for  leaving  should  be  classified  upon 


700 
600 
500 
400 
300 
200 
100 
00 


FIG.  25.      LABOR  TURNOVER  BY  DEPARTMENTS 


SELECTING  AND  CONSERVING  LABOR        189 

the  payoff  slips,  and  statistics  and  charts  should  be 
prepared  which  shall  show  just  why  men  are  quitting 
the  departments  where  the  turnover  is  great.  The 
executive  must,  of  course,  supplement  such  informa- 
tion with  personal  investigation,  or  with  investiga- 
tion by  trained  men — and  must  under  such  circum- 
stances, as  always,  exercise  a  liberal  amount  of  com- 
mon sense. 

The  departments  in  which  the  turnover  is  low  are 
not  so  easily  analyzed  by  means  of  statistics.  More 
investigation  upon  the  ground  is  usually  needed  in 
such  cases.  Once  the  reasons  are  discovered,  how- 
ever— provided  they  indicate  real  efficiency  upon  the 
part  of  the  departmental  executive — an  analysis  of 
such  qualities  will  furnish  ample  material  for  those 
"heart-to-heart"  talks  with  which  the  efficient  execu- 
tive is  always  encouraging  his  aides. 

Once  such  absurdities  as  that  cited  in  a  recent 
paragraph,  have  been  disposed  of,  charts  showing 
the  turnovers  by  departments  can  be  posted  where 
the  foremen  can  all  see  them,  and  a  sense  of  per- 
sonal pride  can  be  developed,  which,  perhaps  together 
with  a  bonus  for  the  attainment  of  a  low  turnover, 
will  materially  reduce  a  fertile  source  of  loss  to  the 
company. 

The  Safety  of  Employees. — An  important  accessory 
in  the  reduction  of  turnover  is  the  safeguarding  of 
employees.  The  advantages  to  be  gained  are  perhaps 
best  set  forth  in  the  following  Standard  Practice 
Recommendation,  which  sets  forth  the  humanitarian 
and  financial  benefits  which  arise  from  the  safe-guard- 
ing of  employees. 


190          EXECUTIVE  STATISTICAL  CONTROL 

STANDARD  PRACTICE  RECOMMENDATION. 
SAFEGUARDING  EMPLOYEES. 

The  Safety  First  Movement  is  not  only  popular  and 
humanitarian,  but  it  is  also  directly  productive  of  returns 
commensurate  with  the  investment,  for  the  following  reasons : 

1.  The  Factory  operated  with  the  safety  of  its  employees 
in  mind  may  secure  a  lower  insurance  rate  from  a  Casualty 
Company  than  the  factory  notoriously  careless.     It  is  prac- 
tically certain  to  assist  in  lowering  the  class  rate  when  the 
inevitable  Employers'  Liability  is  state  law. 

2.  A  factory  well  known  for  its  consideration  for  its  em- 
ployees' safety  can  more  safely  carry  a  limited  policy  (which 
costs  less)  in  the  Casualty  Company  than  the  one  in  which 
conditions  are  such  that  their  bare  statement  to  the  jury  in- 
sures the  limit  in  the  way  of  a  verdict. 

3.  In  case  of  serious  injury  to  an  employee  officials  of 
the  Company  are  liable  to  arrest  and  the  business  is  liable 
to  serious  interruptions  and  losses. 

4.  Public  sentiment  usually   demands  the  reinstatement 
of  any  injured  employee  as  soon  as  he  is  able  to  return  to 
work.     Cripples  and  semi-cripples  do  not  increase  efficiency 
of  plant  operation. 

5.  Frequent  injuries  to  employees  interrupt  the  work  and 
lower  the  morale  of  the  operating  force.     This  costs  money. 
We  therefore  recommend : 

a.  A  thorough  investigation  of  the  Company's  insurance 
policies  with  a  view  to  determining  the  direct  return  which 
can  be  secured  by  putting  the  factory  in  first-class  shape 
from  a  Safety  First  standpoint. 

b.  A  conference  with  the  State  Factory  Inspector,  at 
which  he  shall  be  invited  to  go  over  the  factory  with  the 
Superintendent  and  members  of  the  Industrial  Engineer- 
ing Department  and  suggest  every  possible  change  which 
can  render  working   conditions  more  safe  for  the   Com- 
pany's employees. 

c.  That  all  reports  rendered   (in  regard  to  conditions 
prevailing  in  the  Company's  factory)   by  the  State  Fac- 
tory Inspector  in  the  past,  be  collected  and  submitted  to 
the  Industrial  Engineering  Department. 


SELECTING  AND  CONSERVING  LABOR        191 

d.  That  statistics   in   regard   to   past   injuries  to  em- 
ployees (as  shown  by  reports  to  the  Casualty  Company)  be 
compiled  by  months  in  such  form  that  the  nature  of  in- 
jury, length  of  disability,  final  disposition  of  the  case,  and 
cost  to  the  Company,  is  shown — and  that  such  records  be 
kept  up  to  date  in  the  future. 

e.  That  $20  be  sent  to  the  National  Safety  Council  en- 
titling the  Company  to  active  membership,  to  four  sets  of 
the  weekly  Safety  Literature  distributed  by  the  Council,  and 
to  the  use  of  such  literature  as  a  guide. 

f .  That  steps  be  taken  to  awaken  the  interest  of  all  the 
Company's  employees  in  safeguarding  their  own  safety, 
following  the  lines  of  organization  set  forth  elsewhere. 

h.  That  suggestions  made  by  employees,  executives,  the 
State  Factory  Inspector,  the  Industrial  Engineering  De- 
partment, and  the  representative  of  the  National  Safety 
Council,  be  considered  by  a  Safety  Council  composed  of 
employees  and  executives  of  the  Company,  with  a  view  to 
securing  the  maximum  of  safety  in  working  conditions 
for  every  employee  in  the  Company. 

Safety  First  Campaigns.— The  results  of  a  "safety 
first "  campaign  must  be  brought  to  the  attention  of 
the  company's  chief  executives  constantly  if  that  push 
from  above  is  to  be  insured  which  is  necessary  to 
keep  enthusiasm  alive.  A  method  of  preparing  the 
statistics  is  shown  in  the  following  recommendation: 

STANDARD  PRACTICE  RECOMMENDATION. 
ACCIDENT  DATA. 

The  matter  of  injuries  to  employees  is  of  importance  in 
connection  with  the  employment  question.  Certain  companies 
and  factories  have  a  bad  reputation  in  this  respect,  and  care- 
ful men  avoid  them  when  possible.  The  best  way  to  stifle 
such  rumors  is  to  produce  figures  to  disprove  them.  If  you 
are  spending  money  on  Safety  First  appliances,  you  should 
be  in  a  position  to  judge  the  effect  of  such  expenditure  and 
to  obtain  the  return  which  comes  from  being  able  to  prove 
that  employment  in  your  factories  is  not  dangerous. 


192          EXECUTIVE  STATISTICAL  CONTROL 

Furthermore,  accurate  figures  as  to  accidents  and  their 
causes  are  the  best  preventers  of  accidents  and  of  the  con- 
sequent inefficiency  which  comes  from  having  crews  disorgan- 
ized by  a  member's  absence  or  by  the  employment  of  semi- 
cripples  through  charity. 

Statistics  in  regard  to  injuries  are  sometimes  misleading, 
in  that  the  more  faithfully  your  factory  executives  report 
injuries  the  greater  seems  to  be  the  number  of  accidents.  As 
more  and  more  minor  accidents  are  reported,  the  worse  con- 
ditions appear  to  be. 

At  the  South  Side  factories  12  accidents  were  reported  in 
1908.  Since  that  time  your  statistics  show  a  steady  in- 
crease almost  every  year,  until  you  had  157  accidents  reported- 
last  year — an  increase  of  1308  per  cent.  Inspection  of  your 
factories  shows  that  the  safety  of  your  employees  is  guarded 
with  unusual  care.  Under  the  circumstances,  conclusions 
drawn  from  the  figures  would  be  erroneous. 

For  the  reasons  stated,  and  in  order  to  encourage  team 
work  in  the  interest  of  safety  among  the  men  of  each  factory, 
together  with  a  healthy  rivalry  between  factories,  we  recom- 
mend that  tabulations  for  each  Factory,  etc.  (No.  1,  No.  2,  No. 

3,  Mechanical  Dept.,   and   Carpenter  Dept.),  be  prepared, 
snowing : 

1.  Injured  Employee's  Name. 

2.  Date  Injured. 

3.  Department  in  which  injured  (according  to  list  of  Ac- 
counts) . 

4.  Nature  of  Injury. 

5.  Cause  of  Injury  (sufficient  detail  to  determine  whether 
accident  was   due   to   employee's   carelessness,   to   the   care- 
lessness of  a   fellow-employee,   or  to   something  which  the 
Safety  committee  should  have  attended  to). 

6.  Probable  length  of  disability.    "When  the  injured  em- 
ployee returns  to  work,  or  when  it  has  been  concluded  that 
he  will  not  return,  the  balance  of  the  tabulation  should  be 
filled  in  as  follows : 

7.  Date  returned  to  work. 

8.  Date  quit  (provided  he  does  not  return). 

9.  Reason  for  leaving  Company's  employ. 


SELECTING  AND  CONSERVING  LABOR        193 

10.  Length  of  Disability. 

11.  Settlement,  if  any. 

From  this  data  it  will  be  possible  to  classify  all  injuries 
according  to  their  seriousness,  and  to  locate  the  cause  with  a 
view  to  reducing  accidents.  We  would  recommend  that  this 
information  be  prepared  covering  injuries  received  last  year, 
insofar  as  is  possible,  and  that  a  new  tabulation  be  started 
for  the  current  year  and  be  kept  up  to  date. 

Other  Welfare  Work.— Other  branches  of  welfare 
work,  such  as  health  insurance,  hospitals,  profit-shar- 
ing and  so  on,  are  equally  important.  I  have  gone 
into  detail  in  this  one  instance  to  show  how  the  re- 
sults should  be  brought  to  the  executive's  attention 
and  how  matters  may  be  placed  under  his  control. 

In  some  quarters  in  this  country  the  need  for  more 
general  instruction  in  hygiene  is  almost  unbelievable. 
I  once  knew  a  superintendent  of  construction,  a  man 
earning  $150  a  month,  who  had  a  bad  case  of  rupture 

i  and  treated  it  first  with  gin  and  then  with  antiflogis- 
tine!  He  finally  had  to  neglect  his  work  to  such  an 
extent  that  he  was  sent  to  a  surgeon,  and  was  cured 
by  an  operation.  It  is  a  common  experience  for  com- 
pany-welfare people  to  find  that  inefficient  work  is 
due  to  indulgence  in  patent  medicines  or  to  the  work- 

j  er's  falling  into  the  clutches  of  some  charlatan  doctor. 
The  old  picture  that  the  soapbox  orators  used  to 
paint  of  the  hard-hearted  employer  phoning  franti- 
cally for  a  veterinary  when  his  horse  is  sick  and  al- 
most in  the  same  breath,  phoning  an  employment 
agency  to  fill  the  place  of  the  faithful  worker  just 
fired  for  sickness,  is  being  cast  into  the  discard  as 
rapidly  by  the  establishment  of  enlightened  and  in- 


194          EXECUTIVE  STATISTICAL  CONTROL 

tensive  labor  conservation  as  by  the  displacement  of 
old  Dobbin  by  the  motor  truck. 

As  I  have  said,  work  of  this  sort  which  is  worth 
doing,  work  which  is  practical  and  not  a  mere  fad, 
is  beneficial  mutually  to  employer  and  to  employee. 
It  is  as  much  the  duty  of  the  management  to  organize 
the.  work  for  which  the  money  of  the  stockholders 
is  being  spent  in  such  form  that  he  may  show  them 
tangible  results,  as  it  is  their  duty  to  the  employees 
and  to  humanity,  to  exercise  the  golden  rule  in  busi- 
ness. Just  as  surely  as  honesty  is  the  best  policy, 
will  dividends  be  earned  and  received  by  that  Com- 
pany which  believes  in  the  higher  selfishness,  and 
which  casts  its  bread  upon  the  water  in  the  form 
of  intelligent  welfare  work. 


CHAPTER  X 

SELECTION  AND  CONSERVATION  OF 
MATERIAL 

Selection  of  Material. — The  selection  of  the  most 
effective  material  is  a  process  both  commercial  and 
technical.  The  purchasing  department  usually  takes 
care  of  the  first  element,  and  the  research  laboratory 
of  the  second.  It  is  the  duty  of  the  executive  to  see 
that  the  business  does  not  "fall  between  these  two 
stools,"  asat  were,  as  a  result  of  the  eagerness  of  the 
purchasing  department  to  buy  cheaply  and  the  en- 
deavors of  the  laboratory  to  produce  quality. 

In  such  work  the  administrator  may  be  assisted  by 
engineers  called  in  from  outside  to  organize  for  him 
an  industrial  engineering  staff — from  production 
managers  to  time-study  corps;  he  may  add  an  indus- 
trial engineer  permanently  to  his  personal  staff;  or 
he  may  try  to  do  the  work  himself.  The  course 
adopted  depends  upon  the  type  and  size  of  the  busi- 
ness, and  upon  what  thoroughness  and  ultimate  effi- 
ciency will  satisfy  the  manager  in  question.  If  the 
material  is  not  selected  with  a  view  to  the  possibility 
of  fabrication  when  it  is  effectively  processed  by  effi- 
cient labor,  the  final  result  will  fall  short  of  the  stand- 
ard that  should  be  maintained. 
195 


196         EXECUTIVE  STATISTICAL  CONTROL 

In  this  work  the  engineering  department  is,  in  cer- 
tain sorts  of  business,  an  important  factor.  Just  how 
important  a  factor  it  is,  depends  upon  the  business 
and  upon  the  scope  and  personnel  of  the  department. 
I  have  known  engineering  departments  that  believed 
their  full  duty  performed  if  they  turned  out  a  blue- 
print from  which  a  pattern-maker  could  by  a  liberal 
exercise  of  the  imagination  figure  out  a  pattern,  or 
from  which  a  machine  shop  could  shape  a  casting. 
But  I  have  known  departments  that  were  not  content 
until  their  designs  indicated  fully  the  dimensions  of 
the  best  and  most  economical  casting  which  could  be 
made,  from  the  standpoint  both  of  molding  and  of 
machining.  In  the  first  department  were  draftsmen, 
who  blindly  followed  instructions.  In  the  second  were 
engineers — efficiency,  industrial,  or  whatever  you  like 
— men  who  knew  the  process  throughout,  and  who 
had  made  their  observations  in  that  analytical  atti- 
tude of  mind  which  underlies  what  is  best  known  as 
scientific  management.  The  set-up  from  castings  made 
according  to  their  designs  would  call  for  not  one  min- 
ute more  than  was  necessary,  and  hardly  an  ounce  of 
metal  more  than  absolute  safety  required  would  be 
cut  from  its  surface.  The  executive's  ability  to  control 
the  effectiveness  of  the  engineering  department  in  this 
respect  depends,  in  the  end,  upon  his  ability  to  se- 
lect and  control  his  engineers. 

Graphs  Reveal  Wastage. — Graphs  showing  the  aver- 
age percentage  of  metal  removed  per  month  in  pro- 
cessing, as  compared  with  the  original  weight  of  the 
castings,  are  invaluable.  Castings  are  usually  weighed 
upon  receipt;  if  the  weight  of  all  the  finished  prod- 


FIGS.  26  and  27.     UNNECESSARY  WASTAGE  OF  MATERIAL 

If  the  bricks  in  the  upper  picture  had  been  tested  before  they  were 

built  into  the  wall  of  an  expensive  oven,  they  would  never  have  been 

used.    The  first  firing  destroyed  them.     In  the  lower  picture,  if  the 

scrap  had  been  segregated  according  to  varieties  instead  of  being 

mixed  with  dirt  and  shavings,  it  could  easily  have  been  sold. 

197 


198         EXECUTIVE  STATISTICAL  CONTROL 

uct  is  not  determined,  that  of  selected  samples  can 
be  ascertained — which,  if  the  process  is  an  exact  one, 
will  represent  with  sufficient  accuracy  the  finished 
weight.  If  further  analysis  is  desirable,  departmental 
graphs  can  .be  prepared.  Throughout,  it  must  be 
kept  firmly  in  mind  that  scrap  brings  less  per  pound 
than  castings  cost,  and  that  every  ounce  of  metal  re- 
moved unnecessarily  means  money  wasted  for  labor. 
Graphs  of  this  sort  also  show  very  quickly  from  which 
foundries  it  is  the  most  economical  to  purchase,  since 
the  more  perfect  the  casting  the  less  extra  metal  will 
have  to  be  allowed  in  order  to  insure  the  desired 
result. 

The  same  sort  of  charts  can  be  used,  a  little  differ- 
ently, to  detect  the  wastage  in  skins  pr  hides  used 
in  leather-working.  The  same  principle  is  applicable 
in  the  tobacco  business — in  fact,  in  any  work  in  which 
raw  materials  are  purchased  and  fabricated.  As  in 
the  case  of  the  castings,  fluctuation  in  the  curves  may 
lead  the  executive  to  investigate  the  purchasing  de- 
partment by  indicating  that  unsuitable  material  is 
being  bought,  or  it  may  lead  him  to  examine  the 
operating  departments  in  a  search  for  spoiled  ma- 
terial. 

In  shoe-manufacturing  concerns,  where  employees 
are  paid  to  cut  shoes  rather  than  to  save  leather,  in 
spite  of  the  fact  that  the  cost  of  the  material  repre- 
sents from  eighty  to  ninety  per  cent  of  the  cost  of  the 
finished  product,  material  wastes  cannot  be  given  too 
close  attention  by  the  executive. 

In  one  of  the  cathedrals  of  England  is  the  statue  of 
a  knight  on  horseback.  The  verger  will  call  your  at- 


101) 


200          EXECUTIVE  STATISTICAL  CONTROL 

tention  to  the  fact  that  the  tread  of  the  left  stirrup 
is  missing.  According  to  the  legend,  this  statue  was 
the  life  work  of  an  ancient  monk.  As  he  was  bring- 
ing his  task  to  completion,  he  found  that  he  had  al- 
lowed insufficient  marble  for  the  left  stirrup  tread. 
Nothing  could  be  done  about  it.  His  life  work  was 
ruined.  The  old  man  in  his  despair  committed  sui- 
cide. It  is  difficult  to  imagine  a  modern  mechanic 
whose  tool  had  slipped  disastrously  as  the  part  upon 
which  he  was  working  was  nearing  completion,  being 
so  chagrined  as  to  think  of  taking  his  own  life !  Why 
should  he?  If  no  one  else  notices  whether  he  spoils 
one  or  ten  pieces  a  week,  why  should  he  be  interested  ? 
If  he  receives  just  as  much  pay  if  he  spoils  five  per 
cent  of  his  output  as  if  he  spoils  one  half  of  one  per 
cent,  and  if  he  knows  that  should  he  be  discovered  a 
fairly  good  excuse  or  a  contrite  expression  on  his  face 
will  save  him  from  anything  more  serious  than  a  little 
bluster  on  the  part  of  the  foreman,  why  should  he 
worry?  Very  probably  the  foreman  himself  isn't  par- 
ticularly concerned  if  he  knows  that  the  boss  is  not 
aware  whether  one  per  cent  or  five  per  cent  of  the 
material  bought  is  being  spoiled. 

Analysis  Essential  to  Economy. — In  one  plant,  pro- 
duction losses  amounting  to  over  eighteen  thousand 
dollars  were  reduced  to  eight  thousand  in  less  than  a 
year  through  consistent  attention  on  the  part  of  those 
in  control.  In  a  glass  factory,  an  analysis  of  con- 
ditions reduced  the  breakage  in  one  department  from 
forty  per  cent  to  ten  per  cent — once  the  necessity  was 
made  evident  of  having  the  work  done  by  two  men 
instead  of  by  six  boys.  In  an  automobile-parts  fac- 


SELECTION  OF  MATERIAL  201 

tory,  statistics  showing  the  cause  of  rejections  re- 
sulted in  action  which  reduced  the  amount  of  rejec- 
tions thirteen  per  cent  in  three  months. 

An  analysis  of  the  cause  of  damage  in  manufac- 
ture in  a  large  shoe  factory  located  the  trouble  as  fol- 
lows: 

PROCESS.  PERCENTAGE 

OF  DAMAGE. 

Cutting 1.6 

Closing  22.3 

Stitching    35.5 

McKay  Last 22.0 

Welt  Last 18.2 

Balance  Factory . .  0.4 


Total 100.0 

Further  analysis  brought  out  the  fact  that  the  fol- 
lowing parts  of  shoes  were  damaged: 

PART  DAMAGED.  PERCENTAGE. 

Vamp    59 

Tip    20 

Quarter    10 

Tops    11 


Total 100 

Locating  the  trouble  exactly,  continuously,  and  re- 
lentlessly generally  eliminates  a  large  slice  of  it.  In 
this  particular  instance,  over  six  per  cent  of  the 
sorts  of  damage  described  was  eliminated  in  less 
than  thirty  days.  It  is  by  all  means  advisable  to 
have  a  graph  prepared  which  will  show  the  manager 
each  month  the  total  loss  and  the  loss  by  depart- 


202 


EXECUTIVE  STATISTICAL  CONTROL 


FIG.    29A.      SPOILED    SEMI-PROCESSED    MATERIAL    IN    DEPARTMENT 
NO.  1 

ments.  It  will  tell  him  where  to  direct  the  spot-light. 
Aside  from  the  material  wastes  and  losses  due  to 
carelessness,  ignorance  and  inefficiency,  there  are  very 
often  losses  traceable  to  dishonesty.  In  a  certain  large 
shipbuilding  yard  it  was  found  that  the  men  who 
cleaned  up  at  night,  working  in  collusion  with  certain 
machinists  and  others,  were  stealing  thousands  of 
dollars'  worth  of  brass.  The  machinists  threw  pieces 
of  brass  into  the  waste  receptacles  during  the  day — 
and  the  cleaners  threw  them  over  the  back  fence  at 
night.  A  Western  railroad  was  driven  into  the  hands 
of  a  receiver  by  systematic  looting  covering  a  period 
of  years,  during  whch  time  millions  were  stolen  by 
means  of  a  system  of  charging  up  labor  and  material 
to  car  repairs.  A  graph  in  the  hands  of  the  president 
of  the  company,  showing  the  actual  shrinkage  as  com- 
pared with  the  pounds  of  scrap  sold  by  the  company 
— or  in  the  hands  of  the  directors  of  the  railroad, 
showing  the  cost  of  labor  and  material  per  car  re- 
paired as  compared  with  the  standard  cost  would 
have  prevented  serious  loss  and  disaster. 


SELECTION  OP  MATERIAL 


203 


<f> 

K 

_l 

y 

X 

_l 

o     m 

^ 

^^^ 

0      I0 

^^^ 

* 

^" 

IS*^^N 

— 

Ho  1 

— 

r~~" 

—  ^ 

e        c 

t        ; 

.  i 

- 

j       : 

z 

J           t 

j    E 

i 

J       : 

>       t 

> 

t        i 

: 

D 

i 

^       i 

3         L 

1 

>      I 

L.       : 

E 

<       : 

» 

> 

•>           « 

i    v> 

i 

D        ; 

:      c 

i 

FIG.   29fi.      SUMMATION  OF  LOSSES  IN   TWO  DEPARTMENTS 

By  assembling  the  graphs  of  rejected  material  to  one  which  shows  all 

departments,  it  is  easy  to  pick  out  those  departments  in 

which  the  greatest  losses  occur.     Further  analysis 

of  that  department  will  show  the  cause  of 

trouble. 

Stopping  Technical  Wastes. — Certain  sorts  of  sup- 
ply and  material  wastes  are  what  might  be  called 
traditional  or  technical.  In  one  foundry  the  foreman 
insisted  that  a  certain  amount  of  flour  be  used  in  the 
molding  sand.  An  investigator  noticed  that  the  man 
who  prepared  the  mixture  was  sometimes  careless  and 
sometimes  put  in  more  flour  than  he  did  at  other  times. 
This  seemed  to  cause  no  trouble,  and  it  brought  no 
complaint  from  the  foreman.  The  investigator  there- 
upon persuaded  the  mixer  to .  reduce  the  percentage 
of  flour  for  a  day  about  ten  per  cent.  The  foreman 
made  no  objection.  Ten  per  cent  further  reduction 
was  made.  Still  no  complaint.  This  was  kept  up  un- 
til no  flour  was  used  at  all — and  the  foreman  never 
knew  it! 

Experimental  work  is  about  the  only  remedy  for 
wastes  of  this  sort.  Statistics  did  disclose  in  one  in- 
stance, however,  a  waste  of  solder  in  the  manufac- 


204         EXECUTIVE  STATISTICAL  CONTROL 

ture  of  gasoline  tanks.  Data  kept  in  regard  to  the 
number  of  pounds  of  solder  drawn  by  different  work- 
men brought  to  light  a  wide  discrepancy  in  the 
amounts  used  by  different  men  on  the  same  sort  of 
work.  A  radical  change  was  made  in  the  method  of 
soldering,  and  standard-practice  instructions  were  is- 
sued which  saved  the  firm  a  good  many  hundreds 
every  year. 

Storeroom  Methods. — Storeroom  methods  are  most 
important  in  connection  with  the  control  of  the  effi- 
cient selection  and  conservation  of  material  and  sup- 
plies. In  this  case  the  graphic  method  should  by  no 
means  be  confined  to  the  preparation  of  general  charts 
but  should  be  applied  in  a  very  practical  way  in  the 
storeroom  itself.  Where  the  continuous-inventory 
system  is  in  use  as  described  in  the  following  Stand- 
ard Practice  Recommendation,  it  is  comparatively 
easy  to  make  such  an  arrangement. 

STANDARD  PRACTICE  RECOMMENDATION 

SUBJECT:     STOREROOM  INVENTORIES 

Instead  of  making  a  count  of  all  supplies  in  the  storeroom 
twice  a  year,  which  requires  the  services  of  several  members 
of  the  office  force  at  a  time  when  they  cannot  easily  be  spared, 
as  well  as  of  the  General  Storekeeper,  interfering  with  the 
proper  discharge  of  his  regular  duty  during  that  time,  we 
recommend  the  installation  of  the  Continuous  Inventory 
System. 

Under  this  system  the  stock  of  each  variety  of  supplies  is 
counted  when  it  is  low  and  can  be  counted  quickly.  The  re- 
sult of  the  count  is  entered  in  red  ink  as  shown  on  the  Stores 
Card  (Figure  30). 

Arrangements  should  be  made  to  count  every  article  in 
stock  at  least  once  in  six  months.  This  can  be  taken  care  of 
by  the  storekeeper  running  through  his  cards  occasionally  and 
noting  what  is  still  uncounted. 


SELECTION  OF  MATERIAL 


205 


AF 
OE 
ST 

FORM  3*0     ZM 

OCK  TO  BE  CARRIED  &0OO  ORDER  IN  UOTS  OP  —£&OO.  DANCER  LIMIT  ^-POO 

I    Pl 

JRCHASES 

WITHDRAWALS 

BALANCE 

DATE 

OH                 Q 

*"<n9 

9' 

3-JL6 

-J.-J 

7<? 
•f 

0  // 
*  G. 
OSf 

&  ff 

QU 
2 

a 

3 

? 

X 

XNTM 

c  c 

00 

DATK 
=ili£ 

Qu«» 

SS  7 

°  77 
•  *  7 

C23 

££« 

L  
a 

a 

? 



jf 
t, 

,    4 

///2 

ZLZ 

4^ 

*  2f 
2SS 

yS5 

p 

FIG.  30.      RECORD  OF  SUPPLIES 

At  least  once  a  month  the  store  room  should  be  visited  by 
some  one  acting  in  the  capacity  of  auditor,  who  will  select  a 
number  of  cards  from  the  file  at  random  and  by  count  verify 
the  quantities  shown  thereon. 

Every  six  months  an  auditor  should  go  through  all  the 
cards  and  assure  himself  that  a  count  inventory  entry  has 
been  made  in  red  ink  within  the  six  months  period. 

To  illustrate  the  graphic  method,  suppose  that 
sacks  are  stored  in  a  pile  against  the  wall.  Let  the 
storekeeper  paint  a  red  line  on  the  wall  at  the  exact 
height  of  a  pile  or  of  piles  containing  4000  sacks. 
When  this  danger  limit  is  reached,  the  red  line  comes 
into  view  and  automatically  calls  the  storekeeper's 
attention  to  the  fact  that  it  is  time  to  order  more 
sacks. 

The  same  principle  can  be  applied  to  nearly  every- 
thing else.  Bins  containing  bolts  can  be  divided  into 


206         EXECUTIVE  STATISTICAL  CONTROL 

several  sections,  each  of  which  will  contain  perhaps 
a  thousand  bolts.  It  is  possible  for  the  storekeeper 
to  count  the  bolts  exactly  and  quickly  when  he  notices 
on  his  daily  round  that  there  are  only  three  or  four 
left  in  one  compartment,  and  that  another  thousand 
will  be  broken  into  shortly.  Moreover,  if  there  hap- 
pen to  be  only  two  red-lined  compartments  left  he 
knows  that  it  is  time  to  order  more  bolts. 

The  application  of  the  graphic  principle  in  the 
maintenance  at  all  times  of  a  suitable  supply  of  ma- 
chine-repair parts  is  most  important.  Once  the  mini- 
mum number  of  each  part  which  local  conditions 
make  it  advisable  to  carry,  has  been  determined  for 
each  machine  or  group  of  standardized  machines,  suit- 
able racks  or  bins  should  be  provided  which  shall  al- 
low all  parts  for  such  a  group  to  be  gathered  together 
in  one  place.  The  racks  or  bins  should  be  so  arranged 
as  to  show  at  a  glance  whether  or  not  the  minimum 
which  has  been  determined  upon  is  being  maintained. 
This  makes  it  possible  for  the  master  mechanic  or 
the  superintendent  to  ascertain  periodically  whether 
or  not  the  output  is  safe  so  far  as  repair  parts  are 
concerned. 

Another  advantage  of  this  graphic  system  is  that 
over-supply  is  automatically  prevented.  With  a  place 
for  everything  and  everything  in  its  place,  there  is  no 
room  for  those  overstocks  which  have  a  way  of  creep- 
ing into  even  the  best  run  plants.  Methods  of  ar- 
ranging the  stores  so  that  enough,  but  not  too  much, 
of  any  commodity  is  on  hand  at  all  times  might  be 
described  indefinitely.  But  an  ingenious  storekeeper, 
properly  instructed,  encouraged,  and  assisted  by  the 


208         EXECUTIVE  STATISTICAL  CONTROL 

management  will  generally  develop  sufficient  detail  to 
insure  an  adequate  supply,  without  tying  up  a  lot  of 
capital  unnecessarily  in  dead  stock  and  losing  the  in- 
terest that  the  company's  money  might  have  saved  or 
earned  elsewhere  for  its  stockholders. 

Material  Charts. — It  is  just  as  well,  however,  even 
where  the  continuous  graphic  inventory  is  used,  that 
the  executive  have  a  chart  which  will  tell  him  at 
least  once  a  month  just  how  much  capital  is  tied  up  in 
materials  and  supplies.  This  is  important  principally 
because  the  executive  of  a  large  business  has  access 
to  all  sorts  of  information  that  is  not  usually  avail- 
able to  the  storekeeper.  The  manager  must  be  in 
touch  with  market  tendencies,  must  know  interest 
rates,  and  must  inform  himself  in  regard  to  a  great 
many  other  matters  in  order  to  conduct  the  business 
intelligently  and  effectively.  The  manager  who  can 
foresee  a  rise  in  the  price  of  material  can  save  his 
company  thousands  of  dollars  by  stocking  up  at  a  low 
price.  Conversely,  the  manager  who  feels  that  the 
market  will  fall  is  throwing  money  away  if  he  does 
not  reduce  his  stock  to  the  minimum. 

To  the  manufacturer  who  is  accustomed  to  purchase 
raw  materials  in  large  quantities — the  miller,  the  shoe 
manufacturer,  and  the  men  who  must  combine  with 
their  regular  business  what  often  amounts  to  specu- 
lation— this  is  an  old  story.  There  are,  however, 
thousands  of  manufacturers  in  the  country  who  have 
forty,  fifty,  or  even  a  hundred,  thousand  dollars  tied 
up  in  miscellaneous  supplies  and  yet  never  give  a 
thought  to  the  legitimate  speculative  side  of  the  ques- 
tion, merely  because  the  purchase  and  disposal  of  such 


SELECTION  OF  MATERIAL 


209 


supplies  are  regarded  as  a  subsidiary  matter  of  little 
or  no  importance  as  compared  with  major  problems 
of  the  business. 

To  such,  a  chart  (Figure  32)  showing  the  total 
value  of  supplies  on  hand  together  with  certain  de- 
tails regarding  the  location  and  the  variety  of  the 
stock,  is  likely  to  prove  of  considerable  value.  In  one 
instance  which  came  to  my  knowledge,  a  printing  con- 
cern received  notice  that  a  sharp  rise  in  the  price  of 
paper  would  take  place  on  a  certain  date.  The  com- 
pany had  just  finished  putting  their  stores  system  on 
a  scientific  basis,  had  established  the  rate  of  use,  de- 
termined the  maximums  and  minimums,  and  so  were 
in  a  position  to  buy  heavily  without  danger  of  ac- 
cumulating dead  stock.  Consequently  they  bought  a 
year's  supply  of  paper  just  before  the  rise,  and  saved 
themselves  more  than  ten  thousand  dollars. 


Ar 

/ 

^ 

/ 

V 

/ 

\ 

a. 
< 

mW 

f. 

/ 

/ 

o 
°    20000 



w 

n(t 

X 

^ 

7 

\<y> 

*v 

10000 

^ 

^^ 

•  —  , 

^ss 

^*~ 

2 
< 

•        a 

\    I 

j       c 

i        i 

i   i 

£ 

i       : 

\    \ 

1 

I  I 

i     > 

5        : 

> 

]             L 
5           ~ 
•>           < 

>            L 
C            0 

5  t 

*  < 

-       : 

3            i 

*•           I 

?        C 

) 

J 
3 

FIG.    32.      SUPPLY    CHART    SHOWING   THE   EXECUTIVE   THE   VALUE 
OF   MATERIAL  ON   HAND 


210         EXECUTIVE  STATISTICAL  CONTROL 

Material  and  supply  wastes — both  of  selection  and 
of  conservation — are  so  tied  up  with  process  wastes 
and  with  inefficiency  in  the  use  of  labor  that  it  is 
difficult  to  separate  them.  I  have  endeavored  to  il- 
lustrate certain  phases  of  such  wastes  and  to  indicate 
methods  of  control  for  the  executive.  I  shall  take  up 
other  aspects  of  the  situation  in  the  chapters  which 
follow.  Meanwhile  I  wish  to  emphasize  the  fact  that 
it  is  the  duty  of  the  executive  to  inform  himself  reg- 
ularly and  adequately  concerning  the  efficiency  with 
which  materials  and  supplies  are  selected,  stored,  and 
conserved  if  he  would  secure  to  his  stockholders  the 
full  return  which  is  due  them. 


CHAPTER  XI 
THE  EXECUTIVE  AND  THE  OUTPUT 

Output  and  Production  Costs.— There  is  an  old 
French  song  that  has  the  often  repeated  refrain, 
"Amor,  ramour,  toujours  1'amour" — Love,  Love, 
always  love.  The  modern  plant  executive  who  will 
substitute  "output'*  for  "love"  and  then  murmur  the 
refrain  from  morning  to  night  with  all  the  fervency 
of  the  ancient  bard,  meantime  devoting  his  energy 
continuously  and  consistently  to  realizing  his  dream, 
will  reduce  his  cost  of  production.  Output  is  the 
first  thing  to  which  the  skilled  industrial  engineer 
turns  his  attention  when  he  arrives  on  the  job,  and 
it  is  the  last  thing  which  engages  his  attention  be- 
fore he  completes  his  work. 

The  successful  executive  realizes  the  importance  of 
output,  but  he  often  loses  sight  of  it,  with  a  great 
many  other  obvious  things,  amid  more  novel  details. 
It  used  to  be  said  of  Charles  Schwab  that  his  mere 
presence  in  a  steel  plant  guaranteed  a  jump  of  ten 
per  cent  in  the  day's  output.  No  greater  tribute  could 
be  paid  to  the  personality  of  a  man.  Meanwhile, 
since  Schwabs  are  rare  and  factories  are  many,  most 
corporations  must  resort  to  devices  with  which  to 
supply  the  demand  for  super-personalities. 

If  we  turn  back  to  the  table  in  Chapter  VIII,  page 
211 


212         EXECUTIVE  STATISTICAL  CONTROL 

127,  which  was  used  tx>  illustrate  the  method  of  fixing 
the  relative  importance  of  various  processes,  and  do  a 
little  figuring,  we  shall  see  at  once  the  influence  of 
output  upon  production  costs.  In  the  tabulation  the 
cost  per  ton  was  found  by  dividing  the  dollars  ex- 
pended by  the  tons  produced.  The  divisor  was  as- 
sumed to  be  1200  tons.  In  other  words,  it  cost  $36 
to  move  1200  tons  of  clay  from  the  cars  to  the  dry- 
pans,  or  $0.30  per  ton  (see  first  item  of  tabulation).* 

The  divisor  in  question — 1200  tons — was  used  to 
make  division  of  the  labor  expense  of  grinding,  of 
mixing,  of  making,  of  finishing  and  drying,  of  general 
labor,  of  repairs  to  buildings,  machinery  and  tools, 
and  of  superintendence.  The  same  divisor  was  used 
in  determining  the  cost  of  supplies  for  repairs  to 
buildings,  machinery,  and  tools,  and  also  in  finding 
the  cost  of  miscellaneous  supplies,  of  the  stable  and 
of  power. 

In  the  departments  mentioned  the  expense  of  pro- 
cessing the  material  in  this  particular  business,  and 
also  in  a  good  many  other  of  the  continuous-pro- 
duction type,  would  remain  virtually  the  same, 
whether  1000  tons  or  1500  tons  were  manufactured 
during  the  month.  The  cost  added  to  a  ton  of  clay 
when  processed  in  such  departments  amounts  to  $0.90 
for  labor  and  $0.62  for  supplies,  or  $1.52.  Multiply- 
ing these  amounts  by  1200  tons,  we  find  that  the 
payroll  for  labor  items  was  $1080,  and  the  bills  for  sup- 
plies $744.00,  so  that  the  total  cost  to  put  the  1200  tons 

*  In  the  tabulation,  and  in  these  figures,  I  have  avoided  making 
allowance  for  process  losses  and  have  taken  various  other  liberties 
with  approved  costing  methods.  This  I  have  done  advisedly,  in  order 
to  avoid  befogging  the  main  issue  with  a  lot  of  explanatory  details. 


EXECUTIVE  AND  THE  OUTPUT  213 

through  the  departments  here  described  was  $1824. 

If  the  output  for  the  month  had  fallen  to  1000  tons, 
the  cost  per  ton  would  have  risen  $0.30  ($1824  divided 
by  1000  equals  $1.82  per  ton,  or  $0.30  more  than  the 
$i.52  above).  If,  on  the  other  hand,  1500  tons  had 
been  turned  out,  the  cost  per  ton  would  have  fallen  to 
$1.21  or  $0.31  less  per  ton.  The  difference  in  this 
case,  then,  between  the  labor  and  material  costs  per 
ton  in  the  selected  departments  with  a  quite  possible 
minimum  output,  as  against  the  labor  and  material 
costs  per  ton  with  an  equally  reasonable  maximum 
output,  amounts  to  $0.61  per  ton.  If,  in  addition,  we 
assume  an  overhead  cost  of  50  per  cent  to  cover 
administrative,  sales,  and  miscellaneous  fixed  charges, 
the  difference  in  the  cost  per  ton  will  be  increased 
further  by  $0.31.  This  brings  the  total  difference  in 
the  cost  per  ton  up  to  $0.92. 

If  we  then  assume  a  profit  of  25  per  cent  of  the 
total  cost  in  the  case  of  the  average  production  (1200 
tons),  the  sales  price  becomes  fixed  at  $2.81  and  the 
profit  for  the  month  becomes  $672.  When,  however, 
we  subtract  the  total  cost  of  $2.73  in  the  case  of  the 
minimum  output  from  this  sales  price  of  $2.81,  we 
find  that  we  have  a  profit  of  $0.08  per  ton,  or  $80  for 
the  month's  work. 

As  against  this,  in  the  case  of  the  1500-ton  maxi- 
mum output,  there  is  a  profit  of  $1500,  as  we  find  by 
subtracting  the  total  cost  of  $1.81  from  the  sales  price 
of  $2.81  and  multiplying  the  profit  per  ton  of  $1.00 
by  the  1500-ton  output.  In  other  words,  the  plant 
manager  who  understands  the  value  of  output  and 
who  makes  every  move  count  to  attain  the  ideal,  earns 


214 


EXECUTIVE  STATISTICAL  CONTROL 


his  company,  in  the  case  cited,  $1500,  or  1874  per  cent 
more  than  the  man  who  allows  his  attention  to  be 
side-tracked  by  a  multitude  of  details — who  can't  see 
the  forest  for  the  trees — and  who  allows  the  output 
to  drop.  The  accompanying  table  serves  to  contrast 
the  production-cost  figures  under  minimum  and  maxi- 
mum output  conditions  respectively. 


DIFFERENCE  IN  PRODUCTION  COST  AND  IN  PROFITS  UNDER 
MINIMUM  AND  MAXIMUM  OUTPUT  IN  SELECTED  DEPARTMENTS 

Average 
1200  Tons 

Minimum 
1000  Tons 

Maximum 
1500  Tons 

Cost  of  Labor 

$1080.00 
744.00 

S1080.00 
744.00 

$1080.00 

744.00 

Cost  of  Materials  

Total    Cost   of   Labor   and 
Materials  

$1824.00 

$1824.00 

$1824.00 

Labor  and  Material  Cost  per  Ton 
Overhead  Expense 

$      1.52 
912.00 
0.76 

2.28 

2.81 
0.56 
672.00 

$       1.82 
912.00 
0.91 
2.73 

2.81 
0.08 
80.00 

$       1.21 
912.00 
0.60 
1.81 

2.81 

1.00 
1500.00 

Overhead  Cost  per  Ton  
Total  Cost  per  Ton  
Assume  Profit  of  25%  on  Aver- 
age ;  then  Sales  Price  would  be 
Profit  per  Ton  would  be  

Profit  on  Output  Designated  .  .  . 

Mismanagement  Reduces  Output. — Output  is  not  so 
dependent  upon  the  supervision  of  some  overseer  of  the 
Simon  Legree  type  stalking  about  among  the  em- 
ployees with  a  blacksnake  whip  as  some  of  our  se- 
cialistic  friends  would  have  us  believe.  The  talk 
about  " driving  methods"  and  "speeding  up"  in  con- 
nection with  scientific  industrial  efficiency  is — to  in- 


EXECUTIVE  AND  THE  OUTPUT  215 

dulge  in  a  colloquialism — "pure  bunk.'*  There  has 
been,  and  there  undoubtedly  is  today,  a  certain 
amount  of  Legreeism  in  existence  in  concerns  where 
the  old  fashioned  piece-rate  system  is  still  in  vogue. 
The* 'wage  slaves"  have  combated  this  system  pretty 
thoroughly  and  effectively,  however,  by  means  of 
systematic  idling,  so  that  in  actuality  most  of  the 
oppression  in  such  cases  seems  worse  than  it  is — per- 
haps even  is  mere  play-acting  that  the  employees  in- 
dulge in  to  convince  their  local  Legree  that  his  slaves 
are  terribly  overworked.  In  this  day  and  age,  labor 
conditions  being  what  they  are,  the  employer  who 
is  so  short-sighted  as  to  attempt  to  drive  his  men 
beyond  the  limit  which  local  industrial  public  opinion 
has  decreed  is  fair,  generally  is  the  loser  finally. 

Loss  of  output  is  not  due  to  lack  of  Legreeism  as 
much  as  to  that  mismanagement  which  makes  it 
necessary  for  the  worker  to  spend  his  energy  and  his 
time  upon  matters  which  do  not  contribute  directly 
to  output.  As  soon  as  you  begin  to  analyze  with  the 
stop-watch  the  expenditure  of  the  worker's  time,  you 
find  that  a  considerable  portion  of  his  time  is  spent 
in  waiting  for  something,  or  in  fixing  something,  or  in 
going  after  something.  He  is  doing  a  thousand  and 
one  things  that  he  shouldn't  be  expected  to  do,  and 
while  he  is  doing  them  the  output  of  his  machine  is 
at  a  standstill. 

Time-Studies  Valuable.— Time-studies  selected  at 
random  from  a  series  of  studies  made  during  an  in- 
vestigation of  conditions  in  a  sheet-metal  factory,  dis- 
close the  following  examples  of  this  sort  of  thing  in 
the  cut  and  punch  department: 


216          EXECUTIVE  STATISTICAL  CONTROL 

1.  Machine  operators  doing  their  own  trucking — machine 
idle. 

2.  Machine  operators  handling  their  own  scrap — machine 
idle. 

3.  Unnecessary  handling  by  operators. 

4.  Congestion  of  material  and  semi-processed  material — 
interfering  with  output. 

5.  Slow  and  inefficient  trucking  of  raw  materials — delay- 
ing output. 

6.  Lack  of  materials  required  to  complete  order — neces- 
sitating change  of  job  and  loss  of  output. 

7.  Use  of  wrong  machine — work  could  have  been  done 
faster  on  some  other  machine. 

8.  Wrong  adjustment  of  machine — resulting  in  loss  of 
output. 

9.  Improper  gauging — resulting  in  less  pieces  per  ma- 
chine per  hour. 

10.  Insufficient  methods  of  handling  work — resulting  in 
less  output. 

11.  Improper  placing  of  raw  materials. 

12.  Improper  placing  of  truck  to  receive  machined  ma- 
terial. 

13.  Improper  placing  of  machines. 

14.  Breakdowns — machines,  transmission  and  power. 

Incidentally,  of  course,  there  was  loss  from  the 
performance  of  unnecessary  labor,  in  addition  to  that 
occasioned  by  loss  of  output. 

Improper  Plant  Balance. — Even  more  serious,  if 
possible,  is  the  loss  of  output  resulting  from  improper 
plant  balance.  In  every  factory,  whether  it  is  operated 
under  the  job-production  system — as  in  the  case  of 
the  usual  machine  shop — or  under  the  continuous-pro- 
duction system — as  in  the  case  of  flour  and  paper 
mills — there  is  always  one  department  that  fixes  the 


EXECUTIVE  AND  THE  OUTPUT 


217 


limit  of  the  day's  output.  This  is  variously  known 
by  the  name  of  "the  squeeze"  or  "the  neck  of  the 
bottle, "  or  by  some  similar  name  denoting  that  at  one 
point  there  is  a  constriction  in  the  channel  through 
which  the  factory's  output  flows.  (See  Figure  33.) 


DEPT. 
A. 

DEPT. 
B. 

OEPT. 
C. 

DEPT. 
D. 

DEPT. 
E. 

FA 

1 

CTOF 

Y 

NO 

\C1 

OR 

Y 

N< 

.2 

C 

TOF 

Y 

N 

3. 

1 

F 

i 

/ 

\ 

\ 

1 

I 

/ 

V 

\ 

/ 

E 

\ 

/ 

1 

j 

\ 

/ 

( 

I 

i 

\ 

/ 

[ 

fl 

200     100      0      100    200                      ZOO     100             100    ZOO                  ZOO      100      0 
TONS  PER  WORKING  DAY 

100    ZOO 

FIG.  33.    LOCATION  OP  CONSTRICTION  POINTS  IN  THREE  FACTORIES 

MANUFACTURING   THE  SAME  PRODUCT   UNDER   THE   CONTINUOUS 

PRODUCTION  SYSTEM 

The  chart  represents  the  raw  materials  entering  the  "hoppers"  at 
Dept.  A,  in  each  case,  as  shown  by  the  arrows,  and  being  further 
processed  in  Depts.  B,  C,  D,  and  E.  It  will  be  seen  that  Dept.  A, 
Factory  No.  1,  is  capable  of  processing  360  tons  (180  tons  on  each 
side  of  the  zero  line),  that  when  this  reaches  Dept.  B,  the  con- 
striction has  reduced  the  flow  to  340  tons,  and  that  by  the  time 
the  output  has  reached  Dept.  E,  it  has  been  constricted  to  160 
tons.  This  constriction  point  determined  the  output  of  the  factory 
regardless  of  the  capacities  of  the  earlier  departments.  The  same 
thing  applies  to  the  two  other  factories — in  No.  2  the  constriction 
is  at  both  ends,  and  in  No.  3  at  the  center.  The  dotted  lines  show 
the  engineer's  first  points  of  attack. 


218         EXECUTIVE  STATISTICAL  CONTROL 

It  may  be  that  there  are  not  enough  machines  in 
the  cut  and  punch  department;  it  may  be  that  the  en- 
ameling department  lacks  ovens;  possibly  there 
are  not  enough  planers  to  keep  the  mill  supplied;  the 
hot  tables  may  be  inadequate  in  the  kitchen  of  the 
great  hotel.  Whatever  the  industrial  activity,  there  is 
a  congestion  point  somewhere  that  limits  the  output 
of  those  articles  upon  which  the  income  depends. 

The  reduction  of  this  congestion  to  a  minimum  is 
the  work  of  the  production  engineer.  Although  it 
may  seem,  superficially,  that  all  that  is  needed  is  a 
few  more  shears,  ovens,  or  hot  tables,  in  reality  the 
problem  is  most  complicated,  and  a  competent  pro- 
duction engineer  earns  all  he  is  paid,  however  large  his 
salary.  Balancing  a  factory  and  then  keeping  it  in 
balance  is  as  difficult  as  the  problem  that  confronted 
the  cats  in  the  fable — they  gave  their  pieces  of  cheese 
to  the  monkey  who  was  to  make  a  just  division  by 
nibbling  first  from  one  piece  and  then  from  another, 
but  finally  their  cheese  disappeared.  Unless  exact 
methods  are  employed,  as  fast  as  one  department  is 
balanced  another  is  thrown  out  of  balance. 

For  instance,  in  a  certain  shoe  factory  the  change 
from  a  plain  to  a  perforated  vamp — a  change  likely  to 
be  called  for  any  day — required  an  increase  of  35  per 
cent  in  the  force  in  the  vamping  department  to  pre- 
serve the  balance  with  the  other  operations.  Only 
the  most  careful  sort  of  planning  and  dispatching,  in 
addition  to  a  proper  physical  balancing  of  machines, 
equipment,  floor  space,  and  so  on,  could  prevent  a 
general  upset  of  this  sort.  That  the  right  result  can 
be  secured,  however,  is  proved  by  the  fact  that 


EXECUTIVE  AND  THE  OUTPUT  219 

another  shoe  factory  so  planned  and  carried  out  their 
work  that  they  kept  their  employees  busy  99  per  cent 
of  the  time,  and  the  volume  of  work  at  any  point 
in  the  process  varied  only  1  per  cent  at  any  one  time. 

The  first  case  cited  is  a  typical  example  of  condi- 
tions that  exist  in  every  industry — conditions  which, 
if  the  industry  is  large  and  the  process  complicated, 
can  be  remedied  by  the  work  of  the  expert  who  builds 
in  the  executive  machinery  of  scientific  production — 
centralized  control,  planning,  dispatching  and  all  that 
goes  with  them.  Efficiency  can  be  secured  only  if  the 
skilled  production  engineer  and  those  executives  who 
comprise  the  management  give  their  constant  atten- 
tion to  the  problems  at  hand. 

Daily  and  Monthly  Output  Charts.— The  best 
method  of  getting  the  whole  organization  behind  the 
output  and  keeping  them  there,  organized  for  the  big 
push,  is  to  keep  the  daily  fluctuation  before  the  man 
who  controls  the  company's  policy,  be  he  general 
manager,  president,  or  chairman  of  the  board.  Such 
a  man  knows  the  value  of  output — otherwise  he  would 
not  have  risen  to  the  position  of  supreme  control. 
Unfortunately  he  is  generally  a  busy  man  who  has 
many  calls  upon  his  time,  and  his  inquiries  are  con- 
sequently likely  to  be  spasmodic  and  irregular.  He 
should,  therefore,  arrange,  as  I  have  stated  elsewhere, 
to  have  what  he  should  know  forced  upon  his  atten- 
tion— rather  than  take  what  chance  brings  to  him. 

In  this  case  a  chart  showing  in  condensed  form 
the  output,  for  the  day  previous,  of  all  the  company's 
factories  should  be  placed  under  glass  upon  the 
executive's  worktable  every  morning  at  10  o'clock, 


FIG.  34.      DAILY  OUTPUT  CHART 

Summation  of  factory  monthly  totals  and  cumulative  averages  of  the 

lower  curves  is  shown  in  the  top  curves.     Other  curves  show  labor 

and  shipments.     Previous  averages  are  easily  compared. 

220 


EXECUTIVE  AND  THE  OUTPUT 


221 


by  his  secretary.  It  will  show  him  exactly  what  is 
being  accomplished,  and  in  such  a  manner  as  not  to 
encroach  unduly  upon  his  time  but  at  the  same  time 
quickly  enough  after  the  actual  performance  to  allow 
a  full  investigation  when  necessary. 


FIG.  35.      DAILY  TOTAL  AND  DEPARTMENTAL  OUTPUT 

Department  C  has  been  omitted  to  avoid  confusion  of  lines.  Owing 
to  the  nature  of  the  process,  the  totals  in  Departments  D  and  E  are 
the  summations  of  totals  in  Departments  A,  B,  and  C,  of  about  30 
days  previous.  Only  two  of  the  five  months  referred  to  in  the  text 
are  shown  here.  Fig.  40,  page  000,  covers  the  full  period. 


222 


EXECUTIVE  STATISTICAL  CONTROL 


The  design  of  such  a  chart  depends  upon  the  sort  of 
business  which  it  is  to  portray.  Almost  without  ex- 
ception it  is  advisable,  however,  first  to  show  the 
total  output  and  then  to  subdivide  into  factories  and 
into  departments  so  that  the  executive  may,  in  an  in- 
stant, analyze  fluctuations  in  the  first  case  by  refer- 
ence to  the  lower  curves.  This  enables  him  to  take 
up  the  causes  with  the  particular  department  respon- 
sible, and  conserves  his  time  and  that  of  his  depart- 


TOTAL  MEN 
TO  MANUFACTURE 


MEN  TO 

DEPARTMENTS 

OEPT.  B 

-      C 

"      A 


OEPT.  D 

»       E 

TOTAL  EXCESS 


EXCESS  DEPT. 
X 


MISC.  &  REPAIRS 
OEPT.  E 


5      10     is     ^o    is    10 

JUNE 


6        10 


20    25 


JUUV 


PIG.  35-A.      DAILY  TOTAL  AND  DEPARTMENTAL  EMPLOYEES 

AT  WORK 
This  graph  is  supplementary  to  the  graph  shown  in  Fig.  35. 


EXECUTIVE  AND  THE  OUTPUT  223 

ment  heads.    Figure  34  shows  a  chart  of  this  kind. 

I  have  also  shown  a  monthly-output  chart,  Figure 
35,  by  means  of  which  the  chief  executive  of  a  large 
corporation  kept  himself  in  touch  with  the  effect  of 
some  industrial  engineering  work  that  was  being  done 
in  one  of  his  factories.  It  will  be  noted  that  the  out- 
put in  thousands  rose  steadily  in  the  three  controlling 
departments  during  the  five  months,  that  the  working 
force  decreased  steadily,  and  that  the  number  of  units 
turned  out  by  each  man  every  working  day  increased 
enormously  in  consequence. 

I  have  endeavored  to  show  in  this  chapter  the  im- 
portance of  output  to  the  executive  and  to  the  stock- 
holder— its  effect  upon  the  cost  of  production  and 
upon  the  profits.  I  have  tried  to  show  that  output  is 
not  a  matter  of  driving  the  employee,  but  of  assisting 
him  to  do  his  work  more  effectively  and  with  less  ef- 
fort, furthermore,  I  have  shown  the  necessity  of 
plant  balance  and  of  having  the  machinery  for  main- 
taining this  balance.  Finally,  I  have  led  up  to  the 
conclusion  that  output  is  one  of  the  chief  concerns  of 
the  management,  and  have  endeavored  to  indicate  one 
method  of  keeping  the  facts  before  the  chief  execu- 
tive. I  shall  describe  in  later  chapters  methods  of  in- 
creasing the  results  shown  by  the  last  charts  de- 
scribed by  means  of  more  detailed  statistical  execu- 
tive control. 


CHAPTER  XII 
THE  EFFICIENCY  OF  SUPPLY  OF  LABOR 

Problem  of  Idle  Labor. — If  you  will  stroll  through 
a  factory  and  count  the  number  of  busy  employees — 
those  who  are  actually  engaged  in  productive  work — in 
each  department,  and  will  divide  their  number  by  the 
total  number  of  employees,  you  will  gain  a  rough  idea 
of  the  efficiency  of  supply  of  labor  at  that  particular 
time.  If  you  will  make  such  a  trip  every  hour  for  a 
week  or  two,  and  will  make  due  allowance  for  the 
men  who  got  busy  when  they  saw  you  coming,  you 
will  gain  a  very  fair  idea  of  the  proportion  of  men 
employed  in  each  department  as  compared  with  the 
number  actually  required  to  do  properly  planned  and 
dispatched  work  'under  the  standards  which  then 
exist  in  that  department. 

Of  some  45,000  men  so  observed  during  numerous 
trips  through  one  factory,  38,000  were  noted  as  en- 
gaged in  productive  work.  On  this  basis,  the  "  effi- 
ciency of  supply  of  labor"  was  84  per  cent.  Accord- 
ing to  the  number  of  men  carried  on  the  payroll,  it 
should  have  been  possible,  during  the  trips  made,  to 
observe  52,000  men  actively  engaged.  On  this  basis 
the  "efficiency  of  supply  of  labor  paid  for"  by  the 
company  was  72  per  cent.  Just  what  had  become  of 
the  7,000  missing  men  was  a  mystery  never  completely 

224 


EFFICIENT  SUPPLY  OF  LABOR  225 

solved.  The  washrooms  could  hardly  contain  15  pe: 
cent  of  the  force — although  in  a  good  many  iactories 
the  washrooms,  the  "hole  and  corner"  impromptu 
"smokers,"  and  the  continuous  desultory  migration 
of  employees  from  one  department  to  another,  will 
easily  account  for  an  average  disappearance  of  ten 
or  twelve  per  cent  of  the  paid  employees  at  all  times. 

Any  one  who  will  make  a  few  such  trips  through 
the  average  factory  will  be  amazed  at  the  amount 
of  "fading"  going  on.  As  he  enters  a  department, 
a  group  of  men  have  apparently  always  just  finished 
something  important  and  are  just  departing  upon 
equally  important  business  elsewhere.  Other  groups 
are  always  just  breaking  up  in  other  departments,  and 
the  men  are  "fading  out"  in  different  directions.  If 
the  investigator  will  follow  one  of  these  men,  he  will 
quite  likely  cause  him  acute  embarrassment  while  the 
poor  fellow  is  improvising  something  which  looks  like 
productive  work. 

"The  Man  Higher  Up"  Responsible. — The  man  is 
not  to  blame.  If  the  foreman,  the  superintendent,  and 
the  manager  didn't  know  any  better  than  to  hire  more 
men  than  they  needed,  why  should  he  hesitate  to  ac- 
cept a  livelihood,  even  if  he  does  have  to  play  the 
hyprocrite  at  times?  Let  the  usual  superintendent 
pass  a  congestion  point  when  the  workmen  are  sweat- 
ing blood  and  the  work  is  piled  to  the  ceiling,  when 
the  preceding  department  is  marking  time,  and  the 
succeeding  department  is  yelling  for  work — and  he 
will  be  a  strong  man  indeed  if  he  refrains  from  turn- 
ing in  a  hurry  call  to  the  employment  department  for 
more  men.  When  things  have  straightened  them- 


226         EXECUTIVE  STATISTICAL  CONTROL 

selves  out  again  the  new  employees  become  habitual 
"faders." 

Not  long  ago  I  heard  an  old  railroad  man  telling  a 
companion  about  a  strike  on  a  certain  road  in  Arkan- 
sas— "And  the  biggest  darn  fool  thing  about  the 
whole  business,"  he  said,  "was  that  when  the  boys 
walked  out  the  manager  found  out  how  few  men  the 
road  could  get  along  with,  and  only  about  two-thirds 
of  the  poor  critters  ever  got  their  jobs  back!" 

All  •  this  goes  to  show  that  the  statement  of  a 
famous  efficiency  engineer,  that  "The  industries  of 
America  are  for  the  most  part  under-supervised,  over- 
equipped, and  over-manned,"  is  strictly  in  accordance 
with  the  facts.  The  remedy — from  the  standpoint 
both  of  labor  and  of  capital — lies  in  the  application 
of  all  those  exact  industrial  methods  which  have  been 
developed  under  scientific  management.  Labor  does 
not  enjoy  "fading" — else  why  does  it  slink  away? 
Men  who  haven't  enough  to  do  to  occupy  their 
thoughts  are  bored  to  death.  Prices  raised  on  ac- 
count of  the  high  cost  of  manufacture — due  to  wastes 
of  labor  and  to  wastes  of  material — simply  raise  the 
cost  of  living,  and  the  workman  loses,  because  wage 
raises  always  lag  behind  price"  raises.  The  elimina- 
tion of  excess  labor  does  not  mean  firing  men  right 
and  left.  It  means  neglecting  to  fill  the  places  of 
those  who  leave  voluntarily,  and  dividing  the  saving 
so  effected  among  the  workmen  wTho  remain — the  cost 
of  carrying  out  improvements  which  benefit  capital 
and  labor  alike  and  the  stockholders  of  the  company. 

Co-operation  and  Collective  Action. — Testifying  be- 
fore the  Federal  Commission  on  Industrial  Relations 


228         EXECUTIVE  STATISTICAL  CONTROL 

at  the  New  York  City  Hall,  Ida  M.  Tarbell  made  the 
following  statement,  which  appeared  in  the  New  York 
Times: 

There  seems  to  be  a  silent  revolution  going  on  in  Americar 
Industry.  .  .  .  There  is  an  increasing  desire  to  give  the 
employee  full  justice,  and  the  idea  is  steadily  at  work. 

It  is  coming  out  fundamentally  in  what  is  called  the 
Science  of  Management.  This  breaks  away  entirely  from  the 
old  ideas.  It  means  better  earnings,  shorter  hours  and,  most 
important  of  all,  the  development  of  the  man  as  a  worker. 

One  reason  why  Scientific  Management  is  so  important  is 
that  it  requires  co-operation  and  collective  action  to  make  it 
really  successful. 

Miss  Tarbell  criticized  union  leaders  for  not  going 
into  the  shops  and  studying  scientific  management  in- 
stead of  opposing  it.  One  third  of  the  extra  product, 
she  held,  should  go  to  the  managers,  one  third  to 
labor,  and  one  third  to  the  shop.* 

Just  as  in  the  case  of  output,  the  work  of  propor- 
tioning the  number  of  workers  to  the  actual  work  to 
be  performed  is  the  first  and  last  thing  to  receive 
attention  from  the  industrial  engineer.  We  saw  in 
the  last  chapter  how  the  number  of  men  at  work  in 
each  department  was  charted  on  the  same  sheets  as 
the  output.  There  are  even  more  graphic  methods  of 
bringing  existing  conditions  to  the  attention  of  the 
executive. 

"Excess  Board." — During  the  installation  of  the 
dispatch  system  in  one  department  of  a  large  Eastern 
steel  company,  I  noticed  the  repetition  of  several 
cards  marked  "helping  on  floor."  During  one  of  the 


'  See  Vol.  10,  Industrial  Cost  Finding,  in  the  Factory  Manage- 
ment Course. — the  Ficker  method  of  wage  payment. 


EFFICIENT  SUPPLY  OF  LABOR  229 

dull  periods  these  cards  were  sorted  out,  and  were 
found  to  represent  17  per  cent  of  the  total  labor  in 
the  department.  They  really  represented  the  num- 
ber of  men  for  whom  it  was  "necessary  to  find  some- 
thing to  do,'*  something  upon  which  to  throw  away 
the  company's  money,  to  be  exact — largely  because 
the  work  was  neither  properly  planned  nor  properly 
dispatched.  In  order  to  bring  this  fact  more  forcibly 
to  the  attention  of  the  foreman,  these  cards  were  ar- 
ranged by  themselves  at  the  right-hand  side  of  the 
dispatch  board. 

The  effect  of  this  arrangement  was  so  immediate 
and  so  forcible  that  it  gave  rise  to  a  device  which  has 
since  become  known  as  the  "excess  board."  This  is 
illustrated  in  Figures  37  and  38. 

The  excess  board — at  the  right  in  each  case — is 
painted  red.  The  first  picture  shows  thirty-two  "ser- 
vice cards"  on  the  board.  The  second  picture,  taken 
a  couple  of  months  later,  shows  fifteen  cards,  and  the 
last  picture,  Figure  38,  taken  several  months  later, 
shows  seven  cards.  What  was  accomplished  in  the 
way  of  the  non-replacement  of  unnecessary  labor  in 
the  five  months,  by  this  means  and  by  certain  other 
changes  in  manufacturing  methods,  is  shown  by  the 
chart  in  Figure  39. 

It  should  be  noted  that  the  curves  on  this  chart 
show  that  the  output  rose  steadily,  that  the  actual 
number  of  men  employed  decreased,  and  that  the 
number  of  units  turned  out  daily  by  each  man  in- 
creased enormously — in  this  case  considerably  over  25 
per  cent.  One  of  the  greatest  factors  in  the  accom- 
plishment of  this  result  was  the  practice  of  calling  the 


IIIMllIlII 

IIMIIIMII 


FIG.    38.      THE   EXCESS  BOARD    AFlER   FOUR    MONTHS — ONLY 

SEVEN    MEN    LEFT 

231 


FIG.   39.      MONTHLY   PRODUCTION   GRAPH 

What  the  excess  board  and  other  things  did  for  one  factory. 

232 


EFFICIENT  SUPPLY  OF  LABOR  233 

attention  of  the  foreman  and  the  superintendent — 
regularly  and  relentlessly  at  ten  o'clock  every  morn- 
ing— to  the  fact  that  the  plant  was  using  thirty  or 
thirty-five  men  more  than  they  themselves  had  pre- 
viously stated  were  necessary  for  the  operation  of  the 
factory. 

The  small  white  card  about  half  way  up  the  board 
in  Figure  37,  gave  a  brief  synopsis  of  just  how  the 
excess  labor  was  occupied.  Every  morning  a  glance 
at  this  card  sent  the  superintendent  upon  a  tour  of 
investigation.  Men  who  quit  in  certain  departments 
were  not  replaced,  and  the  results  were  those  shown. 

Operating  the  Dispatch  Board. — Under  glass  upon 
the  chief  dispatcher's  desk,  as  shown  in  Figure  40, 
were  placed  such  charts  as  those  shown  in  the  last 
chapter,  together  with  various  other  graphs  which 
will  be  described  later.  The  object  of  all  this  ap- 
paratus was  to  apply  the  rachet  principle  to  the  gain- 
ful activities  in  the  factory.  Whenever  a  particu- 
larly high  output  was  attained,  the  charts  recorded 
the  fact,  as  well  as  the  number  of  men  required,  and 
this  fact  was  called  to  the  attention  of  those  in  charge 
to  show  the  advantage  of  certain  changes  made  in  the 
method  of  doing  the  work.  Whenever  the  output  fell 
off,  or  the  force  increased,  the  plant  executives  and 
the  industrial  engineering  department  held  a  con- 
ference, to  determine  the  cause.  In  other  words  the 
excess  board,  plus  the  charts,  automatically  kept  those 
responsible  keyed  up  to  make  a  thorough  examination 
of  every  improvement,  in  order  to  make  it  perma- 
nent, and  to  make  a  searching  investigation  of  every 
retrogression,  in  order  to  prevent  its  recurrence. 


FIG.   40.      THE   CHIEF   DISPATCHER'S  DESK 


the  <ontro 


234 


EFFICIENT  SUPPLY  OF  LABOR  235 

This  graphic  feature  of  the  dispatch  board  is  one  of 
its  most  valuable  points,  and  yet  it  is  one  that  is 
sometimes  little  understood  even  by  very  competent 
engineers.  Take,  for  example,  a  manufacturing  plant 
employing  four  hundred  men  in  say  three  factory 
units,  in  each  of  which  work  similar  in  principle  is 
being  performed  in  a  number  of  successive  depart- 
ments. The  superintendent  of  such  a  plant  cannot 
see  every  man  in  every  department  several  times  a 
day,  or  often  enough  to  keep  really  informed  as  to 
what  is  going  on.  I  have  shown  the  impossibility  of 
this  procedure  at  the  beginning  of  the  present  chapter 
in  the  account  of  the  trained  observer's  experience — 
in  which  he  found  that  12  per  cent  of  the  payroll 
was  invisible  at  all  times.  Even  if  the  superintendent 
attempted  to  learn  by  actual  observation  at  just 
what  each  man  was  working  at  a  given  time,  and  just 
how  well  he  was  doing,  a  trip  through  such  a  plant  as 
I  have  described  would  require  from  two  to  three 
hours  a  day,  as  every  timekeeper  knows  who  has  used 
the  old-fashioned  check-up  type  of  time-book.  Three 
such  trips  would  leave  a  conscientious  superintendent 
very  little  time  for  anything  else. 

The  superintendent  can,  however,  enter  a  centrally 
located  dispatch  office  in  such  a  plant,  and  in  fifteen 
minutes  can  see  his  whole  working  force  and  their 
activities  in  camera  obscura,  as  it  were.  On  the 
walls  are  located  three  dispatch  boards,  each  one 
representing  a  factory.  (Figure  40-a.)  On  each 
board  the  service  cards  are  arranged  by  departments, 
marked  by  labels.  Each  service  card  represents  a 
man  engaged  in  some  sort  of  work,  and  all  men  in 


EFFICIENT  SUPPLY  OF  LABOR  237 

excess  of  the  number  authorized  are  arranged  on  the 
excess  board. 

A  glance  at  the  boards  and  at  the  account  numbers 
on  the  service  cards  shows  the  superintendent  or  the 
industrial  engineer  which  factory  is  busiest — as  re- 
gards the  number  of  men  at  work — and  informs  him 
just  what  each  man  is  doing.  Labor  employed  in  De- 
partment A  in  Factory  No.  1  can  be  compared  with 
the  labor  employed  in  Department  A  in  Factories  No. 
2  and  No.  3.  Such  comparisons  give  birth  to  ideas 
that  are  valuable.  Why  are  more  men  needed  in 
Department  A  in  Factory  No.  1  than  at  Factory  No. 
2  ?  The  answer  may  lead  to  a  departmental  reorgan- 
ization that  will  be  worth  thousands  a  year  to  the 
company. 

Omniscience  of  Superintendents. — There  is  a  certain 
type  of  owner  and  manager  who  judges  his  superin- 
tendents by  their  ability  to  answer  offhand  any 
question  asked  at  any  time.  I  once  worked  for  a 
man  who  expected  me  to  know  the  exact  status  of 
every  machine  and  of  every  piece  of  equipment  in 
the  factory,  and  to  be  able  to  say  just  how  many  men 
were  employed  in  each  department  the  moment  he 
reached  the  office  in  the  morning.  He  felt  that  I,  as 
superintendent,  ought  to  be  able  to  reel  off  a  bunch  of 
statistics  that  would  place  the  whole  situation  before 
him  at  once.  Theoretically  the  superintendent,  being 
the  one  responsible,  should  be  able  to  answer  any 
question  and  should  have  the  privilege  of  stating  the 
situation  to  his  immediate  superior.  Practically,  a 
superintendent  who  is  held  to  such  a  theory  develops, 
in  nine  cases  out  of  ten,  into  a  plausible  liar. 


238          EXECUTIVE  STATISTICAL  CONTROL 

To  any  one  who  has  been  a  superintendent  in  a  fac- 
tory employing  four  or  five  hundred  men  organized 
according  to  the  usual  methods,  the  reason  for  this  is 
obvious.  The  moment  the  superintendent  arrives  on 
the  job — say  at  7  a.  m. — he  is  met  by  Billy  Jones,  a 
foreman,  who  tells  him  that  half  his  crew  had  a  "big 
Sunday "  the  day  before  and  that  he  can't  run  until 
six  more  men  are  available.  The  superintendent  tries 
Lysander  and  Ephriam,  other  foremen,  and  finally 
scrapes  up  six  men.  Meantime  a  machine  has  broken 
down,  and  Terence  McGuire,  the  foreman  of  its  crew, 
after  hunting  the  superintendent  frantically  for  half 
an  hour,  finds  him  and  tells  him  that  the  master  me- 
chanic, Angus  McTeague,  "the  dirthy  spalpeen," 
won't  leave  the  repair  job  he  is  on  long  enough  to 
assist  him  in  his  trouble. 

Our  superintendent,  after  straightening  out  this 
Scotch-Irish  tangle,  gets  ready  to  draw  a  long  breath, 
only  to  be  told  that  the  crew  in  Room  24  has  finished 
the  work  they  were  on,  and  "what  will  they  do 
next?"  While  these  major  operations  have  been 
taking  place,  he  has  settled  a  number  of  petty  dis- 
putes, has  given  innumerable  words  of  advice  to  fore- 
men as  to  methods  and  means  of  accomplishment,  has 
fired  a  man  or  two  and  hired  one  or  two,  has  been 
called  to  the  phone  a  couple  of  times,  and  has  passed 
the  time  of  day  with  several  of  his  cronies.  It  is  now 
9  o'clock  and,  inasmuch  as  all  of  these  things  have 
urgently  demanded  his  time,  he  knows  about  as  much 
about  what  the  rest  of  the  plant  is  doing  as  if  he  had 
been  spending  a  week-end  in  Timbuctoo. 

When  the  cry  of  "General  Manager  on  the  phone" 


EFFICIENT  SUPPLY  OF  LABOR  239 

finally  reaches  him,  he  hastens  into  his  office  with  a 
fervent,  if  silent,  appeal  to  his  household  gods  to  help 
him  to  improvise  a  report  to  the  owner  with  the 
fluency  of  a  Miinchausen  and  with  the  non-committal 
convincingness  of  a  Delphic  Oracle.  He  can't  answer 
the  questions.  He  doesn't  dare  say  he  doesn't  know. 
So  he  lies,  and  prays  that  he  may  get  away  with  it. 

The  Proper  Method. — The  thing  is  all  wrong  from 
start  to  finish.  In  the  first  place,  the  superintendent 
should  not  be  expected  to  act  as  a  census-taker — of 
either  men  or  machinery.  Such  information  should 
come  from  the  dispatch  office  at  a  certain  hour — some 
time  before  ten  o'clock — every  morning,  and  entered 
upon  a  chart  upon  the  desk  of  the  general  manager. 

In  the  second  place,  Bill  Jones  should  have  ap- 
plied at  the  dispatch  office  at  about  7.05  a.  m.  for  his 
extra  men,  and  either  should  have  been  given  an 
order  on  one  of  the  "reservoir"  crews  for  his  men,  or 
else  should  have  had  men  hired  for  him  from  the  ap- 
plicants for  work  waiting  at  the  dispatch  office  or  at 
the  employment  office.  This  system  would  have  saved 
the  superintendent's  making  his  begging  trip  to 
Lysander  and  Ephriam  in  search  of  men. 

Thirdly,  our  friend  Terence,  instead  of  indulging  in 
a  race  riot  with  Angus  for  half  an  hour,  and  then 
appealing  to  the  superintendent — the  machine  mean- 
time being  out  of  commission  with  several  men 
standing  idle — would  have  phoned  the  dispatch  office 
for  an  '  *  expense  order, ' '  and  Angus  would  have  been 
on  the  job  under  the  recorded  and  impersonal  orders 
of  a  third  party  not  interested  in  the  Scotch-Irish 
question. 


240         EXECUTIVE  STATISTICAL  CONTROL 

Fourthly,  the  crew  in  Room  24  would  have  had 
its  morning  work  planned  for  it  twenty-four  hours  in 
advance,  the  day  before,  so  that  frantic  efforts  on  the 
part  of  the  superintendent  to  find  something  on  the 
spur  of  the  moment — any  old  thing,  regardless  of  the 
need,  the  preparation,  or  the  value  of  the  work — 
would  have  been  avoided. 

The  words  of  advice  as  to  methods  and  means  of 
accomplishment,  the  courtesies  and  the  judicial  de- 
cisions of  his  position  we  will  leave  him,  together 
with  the  phone  calls  if  they  are  of  such  importance 
as  to  merit  the  attention  of  a  man  whose  time  is  as 
valuable  as  is  that  of  the  superintendent  who  is  com- 
petent to  rule  a  kingdom  of  five  hundred. 

In  the  hour  and  a  half  which  we  have  saved  him 
he  might  have  planned  the  improvement  of  a  process, 
he  might  have  devised  means  of  increasing  the  out- 
put or  of  decreasing  the  cost  of  production,  or  he 
might  have  done  innumerable  things  for  which  his 
brains — the  highest  priced,  and  therefore  supposedly 
the  most  valuable  in  the  plant — were  the  best  fitted. 

This  may  seem  an  exaggerated  case,  but  it  is  not 
very  much  different  from  what  is  happening  all  over 
the  country  under  "casual  management."  In  one  in- 
stance, the  general  superintendent  of  a  factory  em- 
ploying over  1200  men  and  women  was  time-studied 
by  an  expert  for  over  40  hours.  Work  that  occupied 
over  30  per  cent  of  his  time  could  have  been  per- 
formed by  50-dollars-a-month  clerks,  and  his  brains 
could  have  been  used  for  something  worth  while. 

Function  of  Dispatch  Office. — Every  time  a  $6,000- 
a-year  superintendent  spends  3  hours  a  day  doing 


EFFICIENT  SUPPLY  OK  LABOR  241 

things  which  a  $600-a-year  clerk  could  do  just  as  well, 
he  robs  his  company  of  $6  in  wages  and  of  at  least 
$60  which  his  brains  should  have  been  able  to  save  in 
devising  better  methods,  if  he  had  scheduled  them  to 
a  $20-a-day  grade  of  work. 

The  increased  return  to  the  company  from  such  a 
course  can  hardly  be  conceived  until  the  thing  has 
actually  been  tried.  Methods  similar  to  those  de- 
scribed allowed  one  superintendent  sufficient  time  to 
exercise  a  latent  inventive  genius  which  revolution- 
ized a  considerable  branch  of  manufacture.  The  out- 
put of  one  machine  which  had  never  in  the  history  of 
the  business  exceeded  5000  units  per  day,  was  in- 
creased to  13,000  with  but  little  increase  in  the 
operating  crew.  In  another  factory,  by  means  of  im- 
proved methods,  all  sorts  of  articles  were  manufac- 
tured which  had  been  considered  impossible,  and 
great  improvements  in  quality  were  made.  In  one 
case,  the  release  of  a  superintendent  from  routine 
detail  resulted  in  the  acquisition  of  several  valuable 
patents.  In  each  instance  the  best  brains  were  re- 
leased from  routine,  and  the  results  were  of  incalcu- 
lable .value  to  the  company  in  question. 

The  dispatch  office  is  the  pulse  by  means  of  which 
the  factory  management  interprets  the  status  of  labor 
in  the  factory — its  quantity  and  its  use — just  as  the 
storeroom  is  the  pulse  by  means  of  which  it  inter- 
prets the  status  of  material.  The  interpretation  is 
just  as  immediate  as  is  that  which  is  made  by  the 
skilled  practitioner  with  his  hand  on  the  patient's 
wrist.  The  executive  who  is  so  equipped,  who  is 
skilled  in  interpretation,  and  who  is  able  in  action, 


242          EXECUTIVE  STATISTICAL  CONTROL 

need  not  fear  that  conditions  will  arise  of  which  he 
will  be  ignorant,  that  cancerous  growths  will  fasten 
themselves  upon  the  business  to  its  destruction — he  is 
not  dependent  upon  warnings  six  weeks  old,  upon 
costs  which  are  ancient  history.  He  knows  today 
what  is  happening  today.  He  may  not  always  win 
every  battle,  but  at  least  he  cannot  be  taken  un- 
awares. And  the  man  who  has  had  an  opportunity 
to  use  every  resource  at  his  command,  even  if  he 
loses,  goes  down  fighting  gloriously,  in  the  knowledge 
that  he  has  had  a  fair  field  and  an  opportunity  to 
do  his  best. 


CHAPTER  XIII 
EFFICIENCY  OF  USE  OF  LABOR 

Law  of  Dependent  Sequence. — Once  the  execu- 
tive has  determined  that  he  is  using  as  few  men  as  it 
is  possible  to  use,  with  due  regard,  of  course,  for 
their  health  and  ultimate  prosperity,  he  is  naturally 
interested  in  how  effectively  the  men  who  are  present 
are  performing  their  tasks.  It  is  quite  possible,  for 
instance,  to  determine  by  analytical  study  that  a  cer- 
tain machine  can  be  operated  most  effectively  by 
three  men,  instead  of  by  five.  When  the  crew  has 
been  reduced  to  three  men,  the  ''efficiency  of  supply" 
of  labor  then  may  be  said  to  be  100  per  cent.  If 
these  three  men  who  are  selected  to  man  the  machine 
spend  their  time  shooting  craps,  the  ' '  efficiency  of  sup- 
ply" of  labor  is  still  100  per  cent,  but  the  "efficiency 
of  use"  of  labor  is  zero.  It  is  just  as  important  that 
your  men  employ  their  time  effectively  as  it  is  that 
your  plant  should  not  be  over  manned.  The  import- 
ance of  using  as  few  men  as  possible,  and  of  using 
those  men  effectively,  can  perhaps  best  be  shown  by 
citing  an  example  of  the  oft-quoted  "law  of  depend- 
ent sequence": 

If  four  men  make  four  boxes  an  hour,  meantime 
getting  in  each  other's  way  to  such  an  extent  that 
only  two  of  the  men  are  working  effectively  at  any 

243 


244         EXECUTIVE  STATISTICAL  CONTROL 

one  time,  two  men  are  not  needed,  and  the  * '  efficiency 
of  supply" — that  is  the  number  of  men  required  to 
do  the  work  as  compared  with  the  number  being  paid 
to  do  it — is  50  per  cent.  Thus: 

Standard  (2  men)  . 

-—— — }- £.=50%  Efficiency  of  Supply  of  Labor. 

Actual       (4  men) 

If  two  of  the  men  are  given  other  work,  and  if, 
while  the  two  remaining  men  are  making  four  boxes 
in  an  hour,  their  work  is  analyzed  and  it  is  found  that 
they  can  turn  out  twice  as  many  boxes  if  they  are 
given  properly  cut  wood,  suitable  tools,  material  when 
required,  a  well-lighted  working  place,  some  careful 
instruction,  and  an  incentive  in  the  form  of  a  bonus 
for  attaining  the  predetermined  standard — then  their 
former  effectiveness,  as  compared  with  their  new  ac- 
complishment, is  again  50  per  cent.  Thus : 

Standard —  .5 hour     _._  Vlisa  . 

— — =- — -=50%  Efficiency  of  Use  of  Labor. 

Actual —    1.    hour 

The  accomplishment,  then,  measured  in  boxes  made 
per  hour — of  each  man  who  now  turns  out  four  boxes 
in  an  hour  is  four  times  as  great  as  it  was  when  he 
was  turning  out  one  box  per  hour,  or, 

Efficiency  of  Supply  of  Labor  (50%)  X  Efficiency  of  Use 
of  Labor  (50%)  =  Final  (vs.  Original)  Efficiency  (25%). 

Setting  the  Standards. — It  is  this  efficiency  of  use  of 
labor  which  I  wish  to  consider  in  this  chapter  in  con- 
nection with  the  ways  and  means  of  bringing  it  under 
the  control  of  the  divisional  and  general  factory 
superintendents,  and  so  under  the  control  of  the 
management. 


EFFICIENT  USE  OF  LABOR  245 

The  work  of  setting  the  standards  is  a  long  and 
intricate  task  which  must  be  done  by  a  trained 
analyst — a  man  who  cannot  possess  too  much  techni- 
cal knowledge  and  skill  in  the  application  of  the 
scientific  method.  His  work  with  the  stop-watch, 
which  is  described  elsewhere,*  is  another  story,  which 
I  shall  not  attempt  to  tell. 

The  Old  "Gad  and  Carrot"  Principle.— The  method 
of  placing  the  executive  in  touch  with,  and  so  assist- 
ing him  to  maintain,  the  effectiveness  with  which  the 
labor  is  performed  by  the  men  employed  throughout 
the  plant,  depends  somewhat  upon  the  type  of  the 
business  in  question.  Under  the  continuous-produc- 
tion system  a  principle  is  involved  which  the  old-time 
superintendent  called  "using  the  machine  to  shove 
the  work  onto  the  men."  The  system  is  perhaps  as 
well  illustrated  as  possible  by  the  case  of  a  brick 
machine  turning  out  a  certain  number  of  brick  an 
hour,  which  a  crew  of  men  are  required  to  stack  on 
cars  as  they  are  made.  The  machine  would  be 
speeded  up  to  make  just  a  few  more  brick  than  the  men, 
by  working  desperately,  could  handle — to  "shove  the 
work  onto  them"  in  other  words.  The  eventual 
answer  that  the  men  usually  make  under  such  circum- 
stances is — figuratively,  or  perhaps  in  some  cases 
actually — to  throw  a  monkey  wrench  into  the  ma- 
chinery. 

The  old-time  superintendent,  realizing  the  unsatis- 
factoriness  of — as  he  would  express  it — "trying  to 
drive  the  mule  with  the  gad  alone,"  would  sometimes 


*  See  "Planning  nr<l  Time  Studies,"  Vol.  3,  Factory  Management 
Course. 


246         EXECUTIVE  STATISTICAL  CONTROL 

"tie  a  carrot  in  front  of  his  nose,"  in  the  form  of  a 
box  of  cigars  to  be  given  to  the  crew  for  a  good 
weekly  output.  Or,  in  some  cases  which  have  come  to 
my  attention,  he  would  "give  'em  a  keg  of  beer  if 
they  busted  the  record."  Such  gropings  as  this  bring 
home  to  the  investigator  the  real  need  for  scientific 
management.  The  old-time  superintendent  is  a 
product  of  his  environment,  and  the  avidity  with 
which  the  better  sort  of  minor  executives  seize  upon 
certain  parts  of  the  newer  and  more  exact  methods — 
recognizing  at  once  their  value — is  one  of  the  things 
which  keeps  up  the  courage  of  the  industrial  engineer 
during  the  long  and  uphill  path  which  must  be  pur- 
sued in  introducinig  innovations  into  any  manufac- 
turing plant. 

The  Corresponding  Modern  Principle. — What  such 
a  superintendent  is  trying  to  express  with  his  refer- 
ence to  gads  and  carrots  is  this — that  human  nature 
needs  encouragement  as  well  as  driving;  that  fear,  as 
a  motive,  must  be  supplemented  with  hope;  that  the 
prod  must  be  assisted  by  the  helping  hand;  that  there 
must  not  only  be  plenty  of  work  for  each  man  to  do, 
coming  to  him  promptly,  but  there  must  be  an  op- 
portunity for  him  to  push  away  from  him  all  the 
product  that  he  can  make — that  it  is  as  necessary  for 
the  subsequent  department  to  exert  a  pull  as  for  the 
preceding  department  to  exert  a  push;  and  that  once 
the  supply  from  the  rear  and  the  demand  from  the 
front  is  adequate,  there  must  be  something  to  add 
interest  to  the  game  in  the  form  of  a  score,  if  the 
worker  is  to  do  his  best  with  ultimate  satisfaction  to 
himself  and  to  his  company. 


EFFICIENT  USE  OF  LABOR  247 

Gang  Must  Fit  Environment. — What  is  meant  can 
best  be  shown  by  the  accompanying  photographs, 
Figures  41,  42,  and  43,  which  illustrate  certain  viola- 
tions of  the  principles  of  gang  grouping.  "VVe  have 
all  heard  the  story  of  the  Irish  contractor  who,  in  a 
moment  of  abstraction  at  his  mother's  funeral,  called 
out  to  the  pall-bearers,  "There's  too  many  of  yez  on 
thot  job,  two  of  yez  come  over  here."  The  upper 
photograph  in  Figure  41  shows  two  men  standing  by 
their  wheelbarrows,  waiting,  while  a  third  man,  ahead 
of  them,  dumps  his  barrow  and  returns  along  a  nar- 
row path.  At  the  moment,  then,  two  men  out  of  the 
three  have  no  work  to  do.  They  couldn't  work  if 
they  wanted  to.  Neither  carrots  and  beer  nor  bonus 
could  drive  them  to  work.  The  gang  does  not  fit  the 
environment.  Bill  and  Pete  can't  work  until  Hank 
has  returned — as  is  shown  in  the  lower  photograph. 

If  the  boss  had  wanted  Bill,  Pete,  and  Hank  to  have 
an  opportunity  to  work  all  the  time,  he  should  have 
arranged  a  circular  course.  If  he  had  done  so,  each 
could  have  followed  that  course  and  dumped  in  turn. 
There  was,  in  this  case,  plenty  of  room  at  the  pile  for 
all  three  to  load  their  barrows  at  once,  and  plenty  of 
supply,  but  only  one  could  dump  at  a  time.  In  other 
words,  there  was  not  enough  demand.  The  efficiency 
of  use  of  labor  in  the  first  picture  is  33  1/3  per  cent. 

Reservoirs  of  Work. — The  upper  picture  in  Figure 
42  illustrates  the  necessity  for  these  reservoirs  of 
vrork — "push  reservoirs"  and  "pull  reservoirs."  For 
a  great  many  years  manufacturers  of  sewer  pipe  in 
those  sections  of  the  country  that  possessed  clay 
strong  enough  to  stand  handling  by  the  skid  method, 


FIG.  41.     INEFFIENCY  IN  THE  SUPPLY  OF  LABOR 

Two  men  standing  idle,  unable  to  work  until  third  man,  in  lower 

illustration,  has  emptied  his  load.     (See  page  247.) 

248 


FIG.   42.      INEFFICIENCY   IN   THE  SUPPLY  OF  LABOR 

The  same  conditions  as  shown  in  the  previous  illustrations  prevail 

here — men  standing  idle,  waiting  for  their  work.     (See  text.) 

249 


250          EXECUTIVE  STATISTICAL  CONTROL 

were  the  envy  of  all  beholders — especially  when  the 
beholder  was  a  competitor  from  some  section  of  the 
country  where  clays  were  fragile.  On  the  face  of  it, 
it  would  seem  that  dependence  upon  gravity  would  be 
about  the  cheapest  means  of  transportation  which 
could  be  found. 

This  photograph  shows  pipe  being  handled  by  the 
skid  method.  It  will  be  seen  that  the  newly  dried 
pipe  are  put  into  the  chute  which  leads  from  the 
third  floor,  through  a  door  on  the  second  floor  of  the 
building  in  which  they  have  been  dried,  and  carried 
to  the  kilns  in  which  they  are  to  be  baked  and  glazed. 
The  man  on  the  upper  platform  eases  the  pipe  around 
the  turn,  the  man  on  the  lower  platform  receives  the 
pipe  and  hands  them  to  the  man  on  the  runway;  one 
of  these  men  is  seen  carrying  two  pipe  to  the  kiln, 
and  three  of  them  are  seen  waiting  for  their  loads. 
There  are  six  men  in  the  picture,  and  the  only  ones 
who  are  performing  productive  work  are  the  man  on 
the  second-story  platform  and  the  man  who  is  carry- 
ing the  pipe  away.  The  efficiency  of  use  of  labor  is 
therefore  33  1/3  per  cent,  in  spite  of  the  fact  that 
these  men  are  on  piece  work! 

The  lower  picture  shows  all  the  men  idle,  waiting 
for  some  one,  who  is  invisible,  to  slide  some  pipe  down 
the  chute.  The  efficiency  of  use  of  visible  labor 
would,  in  this  case,  have  to  be  placed  at  zero.  In  the 
upper  picture  we  have  four  men  who  can't  work,  be- 
cause no  work  is  supplied  them.  The  reservoir  is 
empty — they  have  nothing  to  draw  from.  The  same 
thing  is  true  in  the  case  of  the  men  shown  in  the 
lower  picture — plenty  of  demand  by  the  men  who  are 


EFFICIENT  USE  OF  LABOR  251 

stacking  the  pipe  in  the  kiln,  but  no  supply  from  the 
third  floor. 

As  a  matter  of  fact,  in  this  particular  case  the  men 
who  transported  the  pipe  from  the  chutes  to  the  kiln 
were  waiting  about  as  much  in  the  kiln  as  they  were 
at  the  chute;  the  reservoirs  which  they  were  filling 
were  quite  as  apt  to  be  found  full,  as  the  reservoirs 
from  which  they  were  drawing  were  to  be  found 
empty.  The  solution  was  found  by  reorganizing  the 
crews,  by  providing  gravity  elevators  and  two  wheel 
trucks,  and  by  placing  the  men  on  bonus,  once  con- 
ditions had  been  standardized. 

Results  of  Standardization. — Figure  43  shows  con- 
ditions as  typical  after  standardization  of  the  work  as 
those  shown  in  the  previous  photographs  were  of 
conditions  that  prevailed  before  standardization  took 
place.  Under  the  new  conditions,  the  trucks  became 
traveling  reservoirs  of  potential  work.  A  trucker 
ran  his  empty  truck  onto  one  elevator  platform, 
whereupon,  as  it  ascended,  another  truck,  filled  with 
pipe,  descended  immediately.  The  wait  at  the 
elevator  constituted  merely  proper  fatigue  allowance 
for  the  trucker.  As  soon  as  the  filled  truck  de- 
scended, the  trucker  wheeled  it  into  the  kiln  and 
found  another  empty  truck  awaiting  him.  Mean- 
time the  men  stacking  the  pipe  always  had  plenty  of 
pipe  to  stack,  since  there  were  various  partly  emptied 
trucks  to  draw  from.  The  amount  of  their  work 
was  therefore  limited  only  by  their  strength  and 
quickness.  Incidentally,  the  men  on  the  drying  floor 
always  had  empty,  or  partially  empty,  trucks  to  load 
and  unlimited  pipe  on  the  floor  to  draw  from,  so  that 


EFFICIENT  USE  OF  LABOR  253 

the  work  of  these  men  was  to  be  measured  by  their 
strength  and  ability.  In  other  words,  every  man  on 
the  crew — truck-loaders,  wheelers  and  stackers — was 
provided  with  ample  supply  and  demand  reservoirs ; 
their  personal  output  was  consequently  limited  only 
by  their  own  personal  ability. 

Lack  of  Standardization  Prevalent.  —These  particu- 
lar examples  are  cited  to  represent  typical  conditions 
in  industry,  because  the  cases  referred  to  occurred  out 
of  doors  and  were  easily  photographed,  and  because 
they  are  simple  enough  to  be  easily  explained.  The 
same  principles  underlie  almost  every  industrial 
activity.  In  a  certain  steel  concern  five  men  were 
assembling  switches  which  required  that  some  twenty 
holes  through  two  wing  rails  and  the  filler  be  lined  up, 
bolts  inserted,  and  nuts  placed  and  tightened.  Upon 
superficial  examination,  it  appeared  that  all  five  men 
were  busy.  Analytical  time-study,  however,  disclosed 
the  fact  that  each  man  was  seriously  held  back  be- 
cause the  reservoirs  of  work  ahead  of  him  were  full 
about  half  the  time — each  bolt-inserter  was  held  up  by 
the  tightener  ahead  of  him.  After  standardization 
the  same  work  was  done  by  half  the  five,  the  odd  man 
being  utilized  by  dividing  the  time  of  one  man  be- 
tween two  crews. 

The  same  thing  is  happening  in  shoe  factories  and 
in.  glove  factories,  where  the  leather  passes  from  hand 
to  hand  and  each  worker  performs  a  certain  opera- 
tion upon  it.  If  each  operative  does  not  have  a 
reservoir  of  work  ahead  of  him  and  behind  him,  there 
will  be  times  when  he  is  idle  through  no  fault  of  his 
own. 


254 


EXECUTIVE  STATISTICAL  CONTROL 


In  the  case  of  the  individual-job  type  of  industry — 
such  as  the  machine  shop,  where  each  worker  is,  so  to 
speak,  a  crew  unto  himself — the  reservoirs  are  repre- 
sented by  the  delivery  of  the  material,  and  by  its  re- 
moval after  it  has  been  processed.  In  the  chapter  on 
"Output"  I  cited  typical  instances  in  the  cut  and 
punch  department  of  such  a  plant. 


( 

AVERAGE 
2ND  YEAR 
PREVIOUS 

AVERAGE 
PREVIOUS 

-<  <j< 

5  £ 

1  Z 

O    m   <" 

z   c   T 

-0   -c  S 

EFFICIENCY     PERCENT                                THOUSANDS    PER  HOUR 

n           O^1         ^j            CO          ti?          O                                                                                                           —  . 

_ 

i 

X 

^ 

Sl^^c 

*-^ 

O- 

•-^.^ 

^ 

?l 

\ 

v^ 

V 

/ 

> 

( 

/ 

/ 

J 

/ 

^ 

V 

% 

N, 

FIG.  44.       CREW  EFFICIENCY 

Released  from  restraint,  and  rewarded  in  exact  proportion  to  accom- 
plishment, a  crew  of  thirty  men  increased  their  efficiency 
of  use  of  labor  from  55  to  100  per  cent. 


EFFICIENT  USE  OF  LABOR 


255 


Value  of  a  Standard. — Enough  has  been  said  to 
make  clear  the  importance  of  so  standardizing  condi- 
tions and  so  grouping  the  workers  that  each  man  may 
do  his  best.  If  the  executive  is  to  rest  assured  that 
the  business  is  being  conducted  in  such  a  way  as  to 
eliminate  waste  and  so  serve  the  best  interests  of  the 
worker,  the  capitalist,  and  the  community,  it  is  quite 
as  important  that  he  know  how  nearly  the  predeter- 
mined standard  is  being  attained — how  effectively  the 
labor  is  being  used — as  it  is  that  he  know  whether 
men  in  excess  of  the  number  actually  required  are 
being  employed. 

First,  it  must  be  determined,  then,  by  scientific 
analysis  just  how  many  men  are  needed  on  each  crew, 


no 

105 

i 

\ 

/ 

95 
90 
85 
•80 
75 
70 
65 
f>0 

I 

-* 

\ 

\ 

/ 

/ 

\ 

\ 

/ 

1 

\ 

/ 

'"V 

i     i     | 

! 

/ 

V 

/ 

|      r      j 

/ 

\ 

/ 

\ 

/ 

N 

1 

; 

\ 

1 

\ 

/ 

/ 

^ 

V  / 

I/ 

\ 

/ 

* 

1 

JLJL 

ttffl 

\/ 

w 

1 

1531  15  30  15  31  15  30  15  31  1551  1528  1531  15  301531  1530  1531  1531 
AUG    SEPTOCT  MOV.  DEC.  JAN.  FEB.  MAR.  APR  MAY  JUNE  JULY  AUG. 
PREVIOUS     YEAR                                   CURRENT   YEAR 

FIG.  45.      CREW  EFFICIENCY  GRAPH 


256 


EXECUTIVE  STATISTICAL  CONTROL 


PIG.  46.      CONTROL  GRAPH,  SHOWING  UNITS  PER  MAN 

Two  actual  examples  are  shown  in  Figures  45  and  46  of  what  was 

accomplished  in  a  crew  and  in  a  factory  by  the  application  of  the 

methods   described   in   the   accompanying   text. 

just  how  such  men  should  do  their  work  in  order  to 
spend  their  labor  most  effectively,  and  it  must  be 
made  possible  by  standardization  of  equipment  and  of 
conditions  to  have  the  work  done  in  this  way;  more- 
over, matters  must  be  arranged  so  that  it  will  be  to 
the  advantage  of  the  crew  to  do  the  work  as  pre- 
scribed. It  will  be  possible  then,  and  only  then,  to 
state  in  a  word  just  how  nearly  .what  actually  is  being 
done  compares  with  what  should  be  done. 

The   advantage  to   the   executive   of   thus   boiling 


EFFICIENT  USE  OF  LABOR  257 

down  the  daily,  weekly,  and  monthly  accomplishment 
of  each  crew  to  a  single  figure — the  percentage  of 
effectiveness  in  the  expenditure  of  labor — cannot  be 
overestimated.  In  the  case  of  the  work  of  our  setters 
of  sewer  pipe,  for  instance,  the  executive  cannot  stand 
there  all  day  and  note  just  how  well  the  work  is  done. 
Even  if  he  hired  a  foreman  to  supervise  the  men,  how 
could  this  foreman,  and  all  the  other  foremen,  report 
to  him  at  the  end  of  the  day  in  words  which  would 
convey  to  him  exactly  how  closely  the  work  of  each 
crew  approached  the  best  that  could  reasonably  be 
expected?  It  would  be  impossible,  even  if  he  had 
time  to  listen. 

Once  the  standard  has  been  set,  however,  he  can 
be  told  in  terms  of  a  percentage  just  how  nearly  the 
work  approached  the  standard.  Such  figures  can  be 
charted  daily,  weekly,  and  monthly  (Figures  44,  45, 
and  46),  and  a  glance  at  the  chart  tells  the  executive, 
much  more  quickly,  exactly,  and  adequately  than  any 
foreman  could,  the  precise  status  of  every  department 
of  every  factory  and  of  the  whole  operative  organiza- 
tion. 


CHAPTER  XIV 

THE  EFFICIENCY  OF  USE  OF  LABOR— 

(Continued) 

Economic  Waste  Too  Common. — In  the  last  chapter 
we  examined  certain  laws  underlying  the  use  of  labor 
in  industry.  In  so  doing  it  may  have  seemed  that 
there  was  a  certain  reversion  to  the  old  system  of 
"shoving  the  work  onto  the  men"  and  supplementing 
the  gad  with  the  carrot  in  such  a  way  that  the  ad- 
vantage was-  only  to  the  employer.  I  cannot 
adequately  cover  this  phase  of  the  matter  in  the  space 
allotted  to  this  part  of  industrial  control — a  few  ex- 
amples will  therefore  have  to  serve  my  purpose. 

In  a  large  automobile-accessory  factory  a  workman, 
on  leaving,  said  to  the  men  who  had  been  setting 
piece  rates  in  the  old  fashioned  way — by  precedent,  by 
guess,  and  by  bargain — "I  don't  mind  telling  you  now, 
that  your  rate  is  too  high.  You've  been  paying  me 
twelve  cents  apiece  when  two  and  a  half  is  enough. 
The  reason  I'm  tellin'  you  is  that  I've  got  it  in  for 
the  fellah  who  is  folio  win'  me  on  the  job."  The  new 
rate  was  set  at  two  and  a  half  cents,  and  the  "fellah" 
mentioned  made  nearly  five  dollars  a  day.  The 
original  workman  could  have  made  about  twenty  dol- 
lars a  day  if  he  had  dared  to  let  himself  out!  In  the 
same  shop  another  man,  when  he  left,  sold  to  his  suc- 
cessor for  over  seventeen  dollars  the  pieces  he  had 

258 


EFFICIENT  USE  OF  LABOR  259 

machined  but  did  not  dare  turn  in  for  fear  of  a  cut  in 
his  piece  rate. 

A  woman  nailing  boxes  in  a  shoe  factory  invented 
a  hammer  with  which  she  could  drive  a  nail  to  the 
head  with  a  single  blow.  She  could  have  made  ten 
dollars  a  day,  but  only  dared  do  work  enough  to  net 
her  three  and  a  quarter.  Instances  of  this  sort  could 
be  cited  indefinitely.  Do  you  think  economic  waste 
of  this  sort  can  be  anything  but  a  tax  on  the  com- 
munity, or  that  it  adds  to  the  employee's  "satisfac- 
tion with  work"  or  to  his  pride  of  accomplishment? 

The  Zest  for  Work.— What  drove  England's  mil- 
lions into  the  army  under  the  volunteer  system — big 
pay  and  a  chance  to  loaf?  or  the  desire  to  be  able  to 
feel  a  pride  in  what  they  were  doing?  Does  a  man 
perform  an  act  of  exceptional  bravery  in  order  to  win 
a  bigger  salary  through  promotion,  or  to  secure 
greater  satisfaction  with  self?  Does  a  man  value  the 
Cross  of  the  Legion  of  Honor  because  of  the  worth  of 
the  metal  in  it,  or  because  his  pride  swells  every  time 
he  looks  at  it? 

William  Jewett  Tucker,  in  an  article  in  the  Atlantic 
Monthly,  reviews  the  changes  in  industrial  conditions 
in  the  United  States  for  the  past  fifty  years  which 
have  led  to  the  awakening  of  what  he  calls  the  social 
conscience — "a  general  awareness  of,  and  desire  to 
correct,  conditions  unfair  to  the  wage  earner."  He 
reaches  his  climax  in  the  question:  "Why  has  in- 
dustrialism robbed  the  individual  and  society  of  the 
inestimable  boon,  the  zest  for  work,  which  is  present 
when  the  profits  of  a  man's  labor  are  wholly  his 
own?" 


260          EXECUTIVE  STATISTICAL  CONTROL 

The  solutions  of  the  problem  of  social  unrest 
offered  by  trade  unionism  and  by  socialism — the  one 
demanding  higher  wages  and  shorter  hours,  and  the 
other  public  ownership — are  examined  by  Dr.  Tucker 
and  are  rejected  as  failing  to  provide  the  basic 
remedy,  "a  consistent  means  of  increasing  satisfac- 
tion with  work." 

Bruno  Laskar,  a  trained  investigator,  in  furnishing 
England  with  material  of  value  in  the  shaping  of  a 
national  labor  policy  at  the  close  of  the  war,  makes 
the  following  statement: 

The  workers  can  be  victorious  in  this  battle  (between  capi- 
tal and  labor  after  the  war)  only  if  they  adopt  the  under- 
lying principles  of  scientific  management  themselves,  for  their 
own  protection,  if  they  abandon  voluntarily  such  outworn 
methods  of  industrial  warfare  as  the  limitation  of  output  and 
the  vigorous  classification  of  workers  into  skilled  and  un- 
skilled, and  substitute  for  them  a  spirited  fight  for  partici- 
pation in  management. 

Systematic  shirking  bores  the  average  working  man 
to  extinction.  Work  is  defined  as  onerous  exertion,  yet 
the  workman  will  play  baseball  until  he  is  in  a  drip- 
ping perspiration,  and  will  at  the  same  time  yell  his 
head  off  with  pure  joy.  No  work  is  any  more  grinding 
and  monotonous  than  training  for  a  college  football 
team,  and  the  danger  to  life  and  limb  is  quite  as  great 
in  that  sport  as  in  most  gainful  occupations.  Yet  we 
don't  hear  of  athletic  teams  limiting  their  output  and 
indulging  in  systematic  slacking — they  have  zest  for 
their  work. 

E.  H.  Sothern,  in  the  autobiographical  account  of 
his  early  struggles,  makes  these  interesting  comments: 


FIG.  47.      INEFFICIENCY  IN  THE  USE  OF  LABOR 
These  are  piece  rate  workers  whose  work  is  not  standardized, 
the  tired,  uninterested  expression  on  the  men's  faces. 
261 


Note 


262         EXECUTIVE  STATISTICAL  CONTROL 

I  had  a  fine  time  doing  my  work.  I  was  entirely  engrossed 
in  it,  it  quite  possessed  me  every  waking  hour.  To  practise 
my  calling  and  to  feel  myself  become  more  expert  day  by  day, 
became  a  passion  with  me — a  gratification  far  beyond  the 
possession  of  wealth,  and  1  say  that  such  a  passionate  obses- 
sion, and  joyful  abandonment,  and  unselfish  slavery  belong 
to  art  alone. 

Oscar,  of  the  Waldorf,  in  an  interview  a  few  years 
ago,  made  the  following  contribution  to  this  subject: 

I  am  glad  that  I  soon  had  sense  enough  to  see  that  specializ- 
ing and  giving  no  thought  to  anything  beyond  my  business 
was  the  straight  road  to  success.  When  I  had  so  seen,  the 
hotel  life  became  my  exclusive  occupation,  my  whole  life's 
chief  concern. 

And  the  late  E.  H.  Harriman  went  on  record  as  fol- 
lows in  regard  to  a  man's  relation  to  his  work: 

I  have  often  wondered  whether  it  was  worth  while — but 
there  is  something  in  a  man  that  makes  him  want  to  go  on, 
to  finish  what  he  has  started. 

And  finally,  Smith,  my  friend  who  is  a  mechanic  in 
a  small  factory,  witnesses  to  the  real  pleasure  of  work. 
Working  overtime,  with  bits  of  scrap  iron  and  a  dis- 
carded motor  he  created  a  machine  for  handling 
heavy  tile,  a  thing  almost  human  in  its  ingenuity. 
He  did  things  with  it  for  me.  He  uttered  no  aphor- 
isms, but  I  know  that  no  actor,  no  maitre  de  hotel,  no 
capitalist,  ever  enjoyed  a  zest  for  work  any  greater 
than  that  which  lit  the  fires  of  happiness  and  content- 
ment in  that  simple  workingman's  face.  In  the  case 
of  these  four  men  whom  I  have  mentioned,  what  place 
have  systematic  slacking,  limited  output,  social  un- 
rest? 


FIG.   48.      PIECE    WORK — UNSTANDARDIZED    AND    STANDARDIZED 
Try  standing  around,  as  the  men  in  the  upper  picture  are  doing,  for 
fifteen   minutes   with   nothing  to   interest  you.     Compare  with   the 
same  crew  as  shown  in  the  lower  illustration  after  work  is  stand- 
ardized und  men  placed  on  bonus. 

X  263 


?64          EXECUTIVE  STATISTICAL  CONTROL 

Scientific  Management  and  the  Worker. — If  scien- 
:ific  management  will  supply  the  place  of  Colonel 

ogey  on  the  golf  links,  of  the  score  board  in  base- 
ball, of  the  joys  of  the  game — team  work  and  emula- 
tion— by  furnishing  a  definite  mark  to  shoot  at,  by 
displaying  the  worker's  efficiency  and  skill  so  that  all 
may  read,  and  by  encouraging  mutual  co-operation  and 
assistance — and  it  will — why  should  the  laborer  be 
denied  this  "consistent  means  of  increasing  satisfac- 
tion with  work"? 

The  great  corporation,  trust,  monopoly,  or  whatever 
popular  invective  may  happen  to  term  it,  is  here  to 
stay.  Mr.  Morgan  was  right.  Eggs  cannot  be  un- 
scrambled. Competition  and  the  small  business  as 
our  grandfathers  knew  it,  cannot  be  restored.  This  is 
an  age  of  organization  and  of  specialization.  When 
seventy  million  Germans  held  the  world  at  bay  by 
sheer  organization  and  efficiency,  no  sane  man  can 
demand  a  return  to  the  methods  of  our  grandfathers. 
We  are  nearly  all  of  us  directly  or  indirectly  working 
for  the  great  corporation.  We  can  no  longer  seek  our 
own  reward  in  the  praise  of  the  satisfied  customer,  as 
did  the  village  shoemaker,  or  in  the  selection  of  the 
fruit  of  our  loom  for  the  altar  cloth  of  our  village 
church.  It  is  not  the  money  that  puts  joy  into  work 
—it  is  the  praise  of  those  we  respect,  of  our  friends 
and  of  our  inner  consciousness,  and  the  efforts  of  our 
peers  to  emulate  our  accomplishment. 

Thousands  of  workers  on  railroads,  and  in  steel 
mills,  automobile  factories,  and  department  stores — 
men  engaged  in  every  sort  of  industrial  activity,  from 
shoveling  to  salesmanship  and  business  administra- 


EFFICIENT  USE  OF  LABOR  265 

tion,  have  in  effect  been  set  up  in  business  for  them- 
selves by  the  application  of  the  principles  of  scientific 
management.  When  the  expert  has  analyzed  each 
motion  of  the  laborer,  and,  using  the  stop-watch  or  the 
cinematograph,  has  determined  just  how  much  work 
he  can  do  without  injury  to  his  health,  has  taught 
that  laborer  how  to  do  his  work  with  the  least  possible 
fatigue  and  in  the  most  effective  manner,  and  then 
has  made  it  worth  his  while  to  reach  the  standard  set, 
by  paying  him  exactly  in  proportion  to  what  he  ac- 
complishes, as  to  both  quality  and  quantity — then  the 
expert  has  made  the  laborer  very  nearly  sole  pro- 
prietor and  administrator  of  his  job. 

Under  the  scientific  system  the  workman  is  in  many 
cases  better  off  than  the  former  owner  of  the  small 
business,  because  the  payment  of  his  day  wage  in- 
sures him  against  undue  risks.  In  addition,  not  only 
is  he  furnished  all  the  incentives  of  the  small  shop- 
keeper through  the  sure  reward  of  his  industry, 
ability,  and  ingenuity,  but  he  secures  the  services  of 
an  expert  advisor.  The  payment  of  a  bonus  for  the 
quality  of  his  work  furnishes  him  with  that  zest  for 
work  with  which  the  praise  of  the  satisfied  customer 
formerly  stimulated  the  artfsan.  Then,  too,  the 
knowledge  of  just  how  nearly  he  is  approaching  the 
carefully  determined  standard  and. his  percentage  of 
efficiency  as  compared  with  that  of  his  fellows,  sup- 
plies him  with  those  elements  of  emulation  and  joy 
in  success  which  give  games  and  sports  their  fascina- 
tion. A  good  day's  work  receives  its  due  reward 
automatically  and  surely  in  that  increased  self-re- 
spect which  follows  accomplishment,  in  the  praise  of 


266 


EXECUTIVE  STATISTICAL  CONTROL 


2200 

2100 

•^ 

*••  B 

/ 

^ 

/ 

/ 

% 

/ 

(^ 

Z 
0 

fl> 

z 

\ 

-I 

« 

r 

X 

1600 

/ 

/ 

j 

u 

\  i 

} 

j         ; 
)          C 

-i                L 

i  i 

2 
>       i 
:       c 

-               ' 

j        i 
*        £ 

o 

}          2 

^          - 

L. 
\           I 

1 

r.       o 
t        i 
•>       i 

u 

3        a 
J        b 

L.           L 

1 

i 

i 

, 

FIG.   49.       COST-OUTPUT    CHART,    INSPECTION    DEPARTMENT 

What  standardization  and  bonus  did  to  the  cost  per  ton  in  an  automo- 
bile factory. 

comrades  who  appreciate  successful  effort,  and  in 
hard,  round,  spendable  dollars.  Why  should  we  deny 
the  modern  factory  worker  all  we  can  give  him  of 
the  advantages  enjoyed  by  his  forefathers,  both  in 
the  added  zest  for  work  and  in  the  opportunity  to 
share  in  the  profits  of  his  endeavors  in  proportion  to 
what  he  does? 

Scientific  Management,  and  Justice. — The  system- 
atic survey  of  a  plant  is,  moreover, -a  great  promoter 
of  justice.  A  timekeeper  in  a  certain  plant  in  which 
some  industrial  engineers  were  beginning  their  work, 
not  long  ago  made  to  me  the  following  suggestive 
comment:  "Gee,  I'm  glad  you  fellows  are  coming  in 

here.    I  was  over  at  the  Company  when  you 

did  your  work  there,  and  we  were  all  glad  to  see  some 


EFFICIENT  USE  OF  LABOR 


267 


2000 


1900 


1700 


1400 


FIG.  50.       COST-OUTPUT  CHART,  TRUCKING  DEPARTMENT 

Another  example  of  the  effect  of  standardization  and  bonus. 

of  those  big  fat  slobs  who  had  been  coming  down 
to  work  at  nine  o'clock  and  spending  their  time 
smoking  big  fat  cigars  in  their  private  offices  get 
busy.  And  you  can  take  it  from  me  there's  a  lot  of 
'em  need  the  same  thing  here!" 

At  another  plant  a  man  who,  because  he  was  over 
sixty,  and  because  he  looked  like  a  fossil,  had  been 
thrust  aside  as  useless,  was  brought  back  into  the 
active  life  of  the  business  and  he  put  on  an  efficient 
basis  a  department  that  had  been  rapidly  going  to 
pieces.  At  the  same  plant,  a  youngster  whose  energy 
had  been  misinterpreted  as  freshness,  and  who  was 
just  on  the  point  of  dismissal  was  loaded  up  with 
work — which  was  what  he  needed — and  within  a  year 
became  one  of  the  company's  most  valued  executives 
at  more  than  twice  his  original  salary. 


268          EXECUTIVE  STATISTICAL  CONTROL 

At  one  of  the  largest  factories  of  its  kind  in  the 
world,  the  man  in  charge  of  the  stables — whom  every 
one  regarded  as  an  instinctive  horseman,  largely  be- 
cause he  was  a  Southerner — was  investigated  quite 
early  in  the  game  because  the  management  thought 
he  might  be  prone  to  too  much  Southern  hospitality 
when  it  carne  to  dispensing  feed  and  stable  supplies. 
When  we  looked  into  the  matter,  we  found  one  of  the 
most  scientifically  conducted  stables  we  had  ever 
seen  in  all  our  experience.  That  one-eyed  Missourian 
could  have  gone  into  the  efficiency  business  himself, 
and  could  have  backed  off  the  map  most  of  the  effi- 
ciency engineers  I  have  known.  He  was  weighing 
every  bit  of  feed  for  every  mule  and  every  horse. 
Each  Sunday  he  weighed  every  animal  under  his 
charge  He  had  the  judgment  of  a  veterinarian,  com- 
bined with  the  interest  of  the  true  horse-lover  To 
these  two  qualities  were  added  a  keen  sense  of 
economy  and  a  strong  regard  for  his  employers' 
ultimate  interests  And  he  had  everything  down  in  a 
book — just  what  combinations  of  feed,  and  just  how 
much  feed  he  had  given  each  animal  on  each  sort  of 
work  over  a  period  of  years,  and  what  the  result  was 
in  each  case.  What  more  could  you  ask  from  the 
most  scientific  of  scientific  managers?  And  yet  the 
management  thought  he  was  wasteful,  until  the  inves- 
tigator came  along  and  helped  him  into  his  own! 

Nothing  discourages  a  conscientious  man  so  much 
as  to  see  a  loafer  getting  ahead  of  him  through  bluff 
or  through  pull.  Men  of  ability  are  often  thrust 
aside  because  they  are  "not  mean  enough."  Older 
men,  who  can  still  perform  their  duties  excellently, 


EFFICIENT  USE  OF  LABOR 


269 


FIG.    51.      DEPARTMENTAL   EFFICIENCY    CHART 

Showing  just  how  nearly  what  was  done  in  the  department  every 

month  approached  what  should  have  been  done.     The  percentage 

tells  the  executive  exactly  the  condition. 

and  who  possess  a  fund  of  knowledge  that  should  be 
utilized  fully,  allow  themselves  to  be  thrust  aside  by 
the  "pushy"  youngsters.  Young  men  who  do  not 
realize,  as  did  Thomas  W.  Lawson,  that  "It  was  a 
great  day  for  fools  when  modesty  was  made  a 
virtue,"  keep  their  lights  well  under  a  bushel,  and  the 
company  is  the  loser.  The  bluffer,  the  sycophant,  and 
their  tribe — men  who  have  wormed  their  way  into 
power  through  politics,  rather  than  through  merit — 


270         EXECUTIVE  STATISTICAL  CONTROL 

cannot  withstand  the  impersonal,  analytical,  relent- 
lessness  of  the  scientific  method  when  it  is  applied  to 
business  management,  and  their  loss  means  justice  to 
real  ability  and  increased  earnings  for  the  company. 

Interest  of  the  Worker  an  Asset. — Aside  from  the 
ethics  of  the  question,  the  interest  of  the  worker  in 
his  work  has  very  real  advantages  from  the  stand- 
point of  the  executive  and  of  the  stockholder.  Men 
who  are  satisfied  with  their  work  are  less  likely  to 
strike — and  strikes  are  quite  as  costly  to  the  em- 
ployer as  to  the  employee.  In  addition,  filling  a  plant 
with  the  slave-driving  or  with  the  sleuthing  type  of 
foreman — with  slave  drivers  or  spies  sufficient  to 
force  every  worker  to  his  limit — is  not  only  very  ex- 
pensive, but  is  likely  to  lead  to  trouble  that  will  be 
even  more  expensive.  If  the  money  that  is  so 
squandered  in  supervision — and  economic  waste  is 
ultimately  paid  for  by  the  consumer — can  be  paid  to 
the  workman  to  get  him  to  supervise  himself,  the 
employer  gains  in  the  reduction  of  overhead  expense 
quite  as  much  as  the  worker  does  in  wages.  (See 
also  Chapter  XL) 

Moreover,  the  ease  with  which  the  executive  can 
control  a  plant  organized  according  to  the  principles 
of  scientific  industrial  efficiency,  as  compared  with  a 
plant  "organized"  under  the  chaos  of  casual  man- 
agement, may  be  compared  to  the  ease  with  which  a 
skilled  driver  handles  a  well-trained  four-in-hand,  as 
against  the  difficulties  encountered  by  a  novice  who 
tries  to  handle  a  team  of  unbroken  colts.  The  first 
type  of  organization  requires  merely  the  guiding  and 
trusted  touch  upon  the  reins  from  time  to  time,  while 


EFFICIENT  USE  OF  LABOR 


271 


the  other  requires  full  strength — and  then,  as  Brad- 
street's  figures  prove,  ends  in  disaster  about  ninety- 
nine  times  out  of  a  hundred. 

Value  of  Statistics. — Irrespective  of  efficiency 
gained  through  conservation  of  energy,  which  will  no 
longer  be  lost  in  useless  friction,  the  statistics  that 
come  to  the  executive  in  the  standardized  shop  mean 
much,  and  are  comprehended  quickly.  By  way  of 
illustration  I  give  the  following  tabulation: 


SWITCH  SHOP 

Operation 

Actual 
Cost 

Former 
Piece 
Rate 
Cost 

Actual 
Saving 

Per- 
cent- 
age 

Percent- 
age of 
Average 
Effi- 
ciency 

1.  Bending  and  Laying  Off 
2.  Planing  Switches  
3.  Planing  R.  Bars  
4.  Miscellaneous  Drilling. 
5.  Switch  Drilling 

$  9.70 
17.44 
2.10 
2.04 
4.84 
5.28 
0.48 

$11.08 
32.24 
3.42 
2.48 
6.26 
5.77 
0.89 

$  1.38 
14.80 
1.32 
0.44 
1.42 
0.49 
0.41 

12 
46 
40 
17 
22 
8 
46 

109 
90 
73 
70 
106 
65 
74 

6.  Riveting,  Bolting  
7.  Blacksmithing  

Totals  

$41  .  88 

$62.14 

$20.26 

32 

90 

These  figures  tell  the  executive  just  what  the  work 
is  costing  in  every  department,  just  what  the  saving 
is  over  former  methods  and,  most  important  of  all, 
just  how  closely  the  work  is  approaching  the  realiz- 
able standard  in  terms  of  a  percentage.  Enter  such 
figures  as  these  upon  a  chart  each  month,  and  the 
chief  executive  has  the  reins  in  his  hand,  with  time 
enough  to  look  about  him,  to  consider  the  future  as 


272         EXECUTIVE  STATISTICAL  CONTROL 

well  as  the  present,  to  devote  his  energy  to  the  big 
problems  of  the  business  that  determine  its  ultimate 
destination.  The  result  can  only  be  better  satisfied 
workmen,  better  satisfied  executives,  and  better  satis- 
fied stockholders — and  upon  these  three  groups  de- 
pends the  prosperity  of  the  community. 


CHAPTER  XV 

THE  EFFICIENCY  OF  USE  OF  MACHINERY  AND 
EQUIPMENT 

Improvement  versus  Innovation. — About  ten  years 
ago  a  Californian  whom  I  met  on  the  Shasta  Limited 
told  me  his  experiences  in  canning  fruit  for  Fred 
Harvey,  the  man  who  carried  metropolitan  hotel  ser- 
vice to  the  Southwest  along  the  Santa  Fe.  My  friend 
stated  that  every  quart  can  of  peaches  bought  by 
the  railroad's  purchasing  agents  had  to  contain  a 
certain  number  of  half-peaches — otherwise  the  fruit 
was  rejected.  The  reason  for  this  was  that  Mr.  Har- 
vey had  determined  that  with  peaches  of  a  certain 
size  three  halves  made  a  generous  dish.  If  a  slightly 
smaller  peach  were  served,  it  was  necessary  to  furnish 
four  halves,  which  meant  that  fewer  customers  could 
be  served  from  a  can,  and  since  peaches  are  bought 
by  the  can,  the  cost  per  dish  to  the  restaurateur  was 
higher  and  the  profit  per  dish  less.  This  is  one  sort 
of  standardization. 

Industry  in  America  has  been  a  sort  of  coral 
growth.  Starting  fifty  years  ago,  with  a  few 
pioneers  who  dared  to  purchase  a  steam  engine  and  a 
few  machines,  our  factories  have  grown  up  piece- 
meal. Each  machinery  manufacturer  and  each 
superintendent  has  added  his  bit  to  the  structure,  and 
departed.  We  are  temperamentally  an  ingenious  and 

273 


274          EXECUTIVR  STATISTICAL  CONTROL 

an  inventive  nation,  and  improvements  in  processes 
and  in  machines  have  been  many.  Unfortunately, 
however,  sometimes  we  have  made  changes  for  their 
own  sake,  mistaking  innovation  for  improvement. 

Irrespective  of  whether  the  changes  have  always 
been  for  the  better,  the  numerous  and  frequent 
changes  that  have  been  made  have  resulted  in  an  end- 
less variety  of  machinery  and  equipment.  This 
variety  is  responsible  for  innumerable  difficulties  both 
in  manufacture  and  in  maintenance.  If  all  the  drill 
presses  in  a  plant  were  the  same — would  do  the  same 
work  at  the  same  speed — a  certain  piece  of  work  that 
required  drilling  could  be  scheduled  to  any  machine 
and  could  reasonably  be  expected  to  be  ready  for  the 
next  operation  within  a  certain  time.  If,  as  is  often 
the  case,  the  work  must  wait  for  a  certain  press,  or 
group  of  presses,  to  be  done  economically,  or  perhaps 
to  be  done  at  all,  the  scheduling  becomes  a  much 
more  complicated  matter.  Furthermore,  congestion 
at  certain  machines  that  are  most  in  demand  is  likely 
to  result.  Perhaps,  in  consequence,  the  piece  is  not 
finished  in  time,  and  the  other  parts  must  all  be  hold 
on  the  assembly  floor  until  it  arrives.  As  a  result, 
delivery  is  delayed  and  various  costly  makeshifts 
must  be  resorted  to. 

Accurate  Standardization. — If,  on  the  other  hand, 
all  drill  presses  in  a  shop  can  be  remodeled  and  classi- 
fied so  that  all  the  machines  in  each  group  can  be 
counted  upon  to  do  a  wide  range  of  work,  in  a  known 
time,  the  progress  of  work  through  that  shop  at  once 
becomes  orderly  and  steady,  and  the  effect  upon  the 
output  and  upon  the  cost  of  production  is  immediate. 


EFFICIENT  USE  OF  MACHINERY  275 

The  same  principle  applies  in  regard  to  any  other 
sort  of  machinery  or  equipment.  Take,  for  instance, 
the  case  of  furnace  work  as  illustrated  by  the  following 
statement  of  an  actual  situation  which  prefaced  a 
recommendation  for  a  standardization  expenditure: 

1.  Theoretically,  there  can  be  only  one  "best"  type  of 
kiln  for  each  class  of  product  that  you  produce — only  one  type 
that   will    turn    out   the    greatest    percentage    of    first-class 
product  with  the  least  coal  and  with  the  least  labor. 

2.  While  the  logic  of  this  theory  is  beyond  question,  practi- 
cally there  is  a  certain  amount  of  variation  in  type  and  in 
dimension  which  may  be  allowed  without  materially  reducing 
the  burning  efficiency  stated  above.     The  need  for  determining 
exactly  the  limits  of  this  variation,  will  become  more  and  more 
evident  as  the  exactness  of  the  burning  methods  is  increased 
by  the  analysis  of  the  burning  conditions  and  methods  which 
the  records  and  the  technical  apparatus  installed  now  makes 
possible. 

3.  While  it  would  be  very  easy  to  state  categorically  that 
a  certain  type  of  kiln  bottom  would  produce  the  best  results, 
and  to  recommend  that  all  kilns  be  changed  without  delay 
to  conform  to  such  a  standard,  the  cost  of  such  a  procedure 
would  be  prohibitive.     The  problem,  then,  is  to  determine  the 
least  amount  of  alteration  necessary  for  each  kiln,  and  to  plan 
and  conduct  that  alteration  in  such  a  way  that  it  can  be  made 
at  the  least  cost  and  with  the  least  interruption  to  the  output 
of  the  plant. 

4.  The  advantage  of  having  all  brick  kilns  construction- 
ally  conform  to  one  standard,  and  all  hollow-ware  kilns  also 
conform  to  one  standard  is,  briefly,  this : 

a.  There  is  one  type  of  kiln  that  will  turn  out  the  best 
product,  for  physical  reasons — because  it  distributes  the  heat 
most  evenly,  because  there  is  not  too  much  radiation  from 
the  crown,  because  the  flash-walls  are  just  the  right  height  to 
protect  the  product,  and  so  on. 

b.  There  is  one  type  of  kiln  that  will  turn  out  this  product 
with  the  least  consumption  of  coal,  for  physical  reasons — 
because  there  is  the  least  loss   of  heat  through  radiation, 


276 


EXECUTIVE  STATISTICAL  CONTROL 


because  the  least  time  is  required  to  drive  the  heat  to  ilie 
bottom,  because  the  kiln  holds  the  most  product  per  cubic 
foot  of  kiln,  because  most  of  the  heat  in  the  gases  is  utilized 
in  heating  up  the  ware  before  the  gases  are  wasted  at  the 
stack,  and  so  on. 

c.  There  is  a  distinct  advantage,  from  the  standpoint  of 
efficiency  of  labor,  in  having  all  kilns  conform  to  one  stand- 
ard. Not  only  is  there  one  type  of  fire  box  which  is  the 
easiest  and  most  economical  to  fire,  with  the  labor  and  the 
coal  that  you  have,  but  your  men  will  produce  more  uniformly 
satisfactory  results  if  the  kilns  are  nearly  enough  alike  so 
that  a  certain  act  on  their  part  will  always  produce  a 
definite  and  uniform  result.  If  every  kiln  is  different  from 
the  rest  (see  Figure  52),  it  is  not  humanly  possible  to  remem- 
ber from  burn  to  burn  the  exact  treatment  to  which  each  kiln 


T-FLUE 
SOLID  BOTTOM 


!  1 

2- FLUE 
SOLID  BOTTOM 


D| 

ILL 


ill  !        *  \ 

SINGLE-STACK  FLUES     SINGLE- STACK  FLUES      SINGLE- STACK  FLUES  SINGLE -SINGLE  STACK 
ONE  SIDE  BALANCED  FULL   LENGTH  FLUE 


FIG.  52.      UNSTANDARDIZED  EQUIPMENT 
Varieties  of  brick  kilns  at  one  factory — only  flues  are  shown. 


EFFICIENT  USE  OF  MACHINERY 


277 


8   9    6   10    18  14  2    I    7    II   3    15   5    13  4    12  16   8    9 
KILN  NUMBER 


FIG.  53.      CHART  SHOWING  RESULT  OF  FURNACE  STANDARDIZATION 

responds  to  the  best  advantage  during  every  stage  of  the 
burn.  There  are  enough  unavoidable  variables  without  add- 
ing to  the  difficulties  of  the  situation  by  having  any  more 
variation  in  type  and  in  dimensional  proportion  than  is 
absolutely  necessary. 

At  the  time  this  statement  was  written  the  burn- 
ing time  was  varying  as  much  as  200  per  cent  in  some 
instances — with  the  same  coal  and  the  same  labor. 
The  difficulties  of  carrying  out,  under  such  conditions, 
the  production  planned,  can  readily  be  imagined. 
The  result  of  the  seventh  month's  standardization 
work  that  was  put  through  is  charted  in  Figure  53, 
from  which  it  will  be  observed  that  the  extreme  varia- 
tion hfid  been  cut  down  to  about  three  days,  and  the 
average  turning  time  had  been  cut  from  over  twenty- 
one  days  to  about  sixteen  days.  By  the  end  of  July 
it  was  possible  to  schedule  the  product  with  some  do- 


278         EXECUTIVE  STATISTICAL  CONTROL 

gree  of  certainty  that  the  finished  ware  would  be 
ready  for  delivery  when  promised. 

If  you  plan  to  have  a  certain  product  ready  at  a 
certain  time,  if  you  have  your  men  all  ready  for  it  in 
subsequent  departments,  if  your  customer  is  planning 
to  make  use  of  it  at  a  certain  time,  and  then  some  one 
process  takes  twice  as  long  as  you  expected,  the  result 
is  disastrous.  An  automobile  plant  I  visited  not  long 
ago,  in  which  standardization  has  been  carried  to  as 
high  a  point  of  perfection  as  in  any  factory  in  the 
country,  had  service  cards  made  out  and  dated  for 
work  to  be  done  six  months  later.  Contrast  this 
system  with  that  of  the  concern  so  organized  that  the 
foremen  amble  around  each  morning  and  "hunt  up 
something  for  the  men  to  do!" 

Reducing  the  Number  of  Delays. — Some  of  the 
worst  foes  to  the  performance  of  work  on  schedule  are 
the  delays  caused  by  breakdowns  and  by  lack  of 
material.  The  accompanying  chart,  Figure  54,  shows 
the  reduction  of  the  number  of  such  delays  in  one 
department  of  a  large  factory.  It  will  be  noted  that 
the  total  average  machine-hours  delay  shown  for  each 
month  in  the  lower  part  of  the  chart,  was  gradually 
reduced  from  sixty-five  to  twenty  hours  per  month. 
The  cause  of  these  delays  is  shown  by  the  curves 
below  the  line  marked  ''Total."  The  upper  half  of 
the  chart  shows  the  reduction  in  a  percentage  of  the 
total  working  time  of  the  department  (twenty-six  ten 
hour  days  are  figured  to  each  month).  , 

The  reduction  of  the  number  of  interruptions  of 
this  sort  requires  endless  attention  to  detail.  Let  us 
notice,  for  instance,  the  reduction  of  the  number  of 


R  CENT  OF  PRODUCTIV 
MACHINE  HOURS 
—  ro  oj 
OOOo 


70 
60 
SO 
40 
30 
20 
10 


'Yi, 


M/scef/c 


s 

<         {/>         o 


FIG.  54.      CHART  GIVING  INFORMATION  OF  MACHINE  SHUT-DOWNS 

The  cliart  also  shows  the  executive  how  to  reduce  the  number  of  such 

interruptions  to  output,  by  directing  attention  to  the  causes. 

279 


280         EXECUTIVE  STATISTICAL  CONTROL 

delays  due  to  belt  failures.  Usually  belts  are  re- 
paired after  they  break;  but  scientific  management  de- 
mands that  belts  be  repaired  before  they  break.  Only 
in  that  way  can  interruption  to  output  be  avoided. 
Such  a  program  demands  functionalized  repairs. 
Just  what  that  means  is  perhaps  best  illustrated  by 
the  following  quotation  from  an  actual  standard- 
practice  recommendation: 

STANDARD  PRACTICE  RECOMMENDATION 

BELT  RECORDS 

We  have  several  recommendations  to  make  in  connection 
with  reducing  delays,  the  first  of  which  is  the  introduction 
of  Belt  Records. 

Practice  has  been  to  wait  until  a  belt  fails  before  repairing 
it,  and  then  to  repair  it  by  whatever  means  are  at  hand, 
usually  after  a  temporary  fashion.  Furthermore,  whoever 
happens  to  be  running  a  machine  is  called  upon  to  do  the 
work,  except  in  a  particularly  difficult  case.  The  natural  re- 
sult has  been  that  nearly  all  the  belts  in  the  plant  have 
deteriorated  to  a  point  where  breakdowns  are  always  im- 
minent. 

To  eliminate  this  faulty  condition,  we  suggest  that  one  man 
be  appointed  custodian  of  the  belts,  and  that  he  be  given  a 
supply  of  Belt  Record  Cards  on  which  to  record  all  the  data 
necessary  for  maintaining  .the  belting  at  a  proper  standard 
of  condition.  This  work  should  not  require  all  the  time  of  one 
man ;  but  he  should  be  given  to  understand  that  it  is  his  first 
and  most  important  duty. 

Use  of  the  Belt-Record  Card. — In  order  to  have  a  written 
description  of  each  belt  in  the  plant,  together  with  a  record 
of  all  repairs,  renewals,  and  so  on,  a  belt-record  card  has  been 
drawn  up.  The  data  for  these  cards  are  first  supplied  by  a 
careful  survey  of  all  the  belts,  one  card  being  made  out  for 
each  belt.  At  the  start,  all  the  important  dimensions,  speeds, 
horsepower  to  be  transmitted,  pulley  diameters,  and  so  on,  are 
entered  at  the  top.  From  then  on,  all  work  done  on  a  belt  is 
described  in  the  columns  below,  from  which  record  it  is  pos- 


EFFICIENT  USE  OF  MACHINERY  281 

sible  to  tell  whether  or  not  the  belt  is  giving  trouble  or  is 
wearing  out  too  quickly.  If  the  performance  is  not  satisfac- 
tory, steps  can  be  taken  to  better  the  conditions  under  which 
the  belt  is  working. 

Weekly  Inspection  of  Belting. — In  order  to  anticipate 
and  prevent  breakdowns,  which  are  the  big  factor  to  be  con- 
sidered, the  belt  man  should  inspect  every  belt  once  a  week. 
He  can  best  do  this  by  following  a  regular  route  through  the 
plant,  examining  a  few  belts  each  day  so  that  by  the  end  of  a 
week  he  will  have  inspected  all  of  them.  Any  belts  found  to 
be  in  poor  condition  should  be  repaired  at  once. 

Care  of  Belting. — Among  the  most  common  causes  of  the 
destruction  of  belts  are  the  following: 

1.  The  belt  is  too  wide  for  pulleys,  so  that  part  of  the  belt 
runs  beyond  the  edge  of  the  pulley,  causing  the  edges  to  fray. 

2.  Misalignment  of  pulleys,  causing  the  same  trouble. 

3.  Poor  shifting  devices,  the  fingers  of  which  catch  in  the 
belt  joint  and  tear  it. 

4.  Poor  fastenings,  often  out  of  square,  which  cause  one 
side  of  the  belt  to  be  tighter  than  the  other.     Sometimes  the 
fastening  is  poorly  made,  so  that  it  introduces  a  spot  in  the 
belt  much  weaker  than  the  rest  of  the  belt. 

5.  There  are  too  many  pieces  to  the  belt.     Lack  of  proper 
care  often  results  in  a  belt 's  finally  being  made  up  from  thre^ 
to  eight  separate  lengths,  all  fastened  together  with  hooks.     A 
belt  should  be  in  one  piece,  or,  at  the  most,  in  two  pieces. 

6.  The  use  of  belt  dressing  containing  resin,   which  is 
effective  in  an  emergency,  is  only  a  temporary  relief,  and  Je- 
suits in  injury  to  the  belt.     If  the  belt  is  large  enough,  no 
dressing  of  this  sort  is  required. 

7.  Failure  to   clean  and  oil  belts   at  regular   intervals. 
Belts  are  allowed  to  soak  up  oil  and  dirt  until  they  fail  to 
take  a  proper  grip  on  the  pulleys.     The  result  is  slipping  and 
burning. 

8.  Belts  are  too  loose,  so  that  they  flap  and  run  back  and 
forth  across  the  pulleys.     A  tight  belt  will  transmit  much 
more  power,  and  will  last  several  times  longer,  than  a  loose 
one. 

The  remedies  for  these  faults  are  suggested  by  the  faults 


282         EXECUTIVE  STATISTICAL  CONTROL 


themselves.  But  to  insure  that  the  belts  will  receive 
thorough  and  systematic  care,  it  is  essential  at  all  times  to 
have  one  man  in  charge  of  them,  a  man  who  will  make  re- 
pairs before,  and  not  after,  breakdowns  occur. 

The  accomplishment  in  one  case  under  this  system 
— as  illustrated  by  the  reduction  of  the  number  of 
belt  failures  in  one  department  of  a  large  Eastern 
steel  company — is  shown  by  the  accompanying  chart, 
Figure  55. 

Similar  Laws  For  Machinery  and  Labor. — In  gen- 
eral, very  much  the  same  laws  apply  in  the  case  of 
machinery  and  equipment  as  do  in  the  case  of  labor. 


FIG.  55.      BELT  FAILURES  ON  ALL  MACHINES  IN  ONE  DEPARTMENT 

Each  failure  means  an  interruption  in  the  output.     Standardization 

and  functional  repair  crew  organizations  affect  the  reduction. 


EFFICIENT  USE  OF  MACHINERY  283 

The  first  questions  for  the  executive  are:  "How 
many  working  hours  are  my  machines  busy  each  day  ? 
In  other  words,  what  is  the  'efficiency  of  supply'? 
Have  I  more  machines  than  I  need?  If  I  have,  had 
I  better  sell  them  or  had  I  better  alter  my  business 
policy  in  some  way  so  that  I  can  work  them  a  greater 
per  cent  of  the  time?" 

Not  long  ago  a  printer  called  in  a  firm  of  engineers 
to  find  out  where  he  was  losing  money.  As  he  ex- 
pressed it — "I  know  exactly  what  paper  costs  me  and 
what  ink  costs  me,  and  I  know  how  much  labor  it 
takes  to  do  a  job.  It  seems  as  if  I  ought  to  be  able 
to  sit  right  here  at  my  desk  and,  by  adding  ten  per 
cent  to  the  cost  of  doing  every  job  that  comes  in,  be 
able  to  make  a  good  profit.  But  lately  I  have  not 
been  even  holding  my  own." 

Investigation  showed  that  the  business  was  being 
run  largely  on  borrowed  capital  and  that  only  about 
one  half  the  equipment  was  in  continuous  use.  In 
other  words,  the  printer  was  paying  interest  on 
$50,000  at  6  per  cent  and  only  about  $25,000  worth  of 
equipment  was  working  for  him.  In  effect,  the  outgo 
in  interest  was  $3,000  a  year  (6  per  cent  of  $50,000) 
and  the  income  was  $2,500  (10  per  cent  of  $25,000). 
The  engineer's  advice  was,  "Stop  sitting  at  your  desk 
and  get  out  and  hustle  enough  business  to  keep  all 
your  machines  busy." 

A  friend  of  mine  was  once  called  in  to  pass  upon 
the  expenditure  of  $150,000  for  new  machines  in  a 
concern  employing  about  two  thousand  men.  Not 
only  did  idle-machine  records  show  that  the  new  ma- 
chines were  not  required,  but  two  years'  standardiza- 


284         EXECUTIVE  STATISTICAL  CONTROL 

tion  resulted  in  an  increase  of  60  per  cent  in  the 
plant's  output  without  any  addition  to  the  equipment 
whatsoever. 

In  this  case  the  executive's  question  as  to  the  effi- 
ciency of  supply  of  equipment  was  answered  when  the 
engineer  said,  "Don't  buy  any  more  machines.  You 
aren't  using  what  you  have".  The  executive's  second 
question,  "What  is  our  'efficiency  of  use'?"  was  an- 
swered when  the  engineer,  by  means  of  standardiza- 
tion, increased  the  output  60  per  cent.  The  two  main 
questions  then  which  concern  the  executive,  are: — 

1.  Am  I  using  all  my  equipment  all  the  time? 

2.  How  effectively  am  I  using  my  equipment? 

Effect  of  Equipment  Upon  Labor.— Aside  from  the 
feature  of  overhead,  interest  on  investment,  and  so 
forth,  there  is  the  very  vital  question  of  the  effect 
certain  types  of  equipment  have  upon  the  effectiveness 
of  the  labor  employed.  The  accompanying  photo- 
graphs, Figures  56,  and  57,  furnish  some  horrible  ex- 
amples in  this  connection. 

The  first  two  show  crews  of  men  removing  sewer 
pipe  from  the  kiln.  The  management  of  this  particu- 
lar plant  had  been  laboring  under  the  impression  that 
the  flow  of  product  was  "squeezed"  at  the  kilns.  As 
the  superintendent  expressed  it,  "We  haven't  got 
kilns  enough — so  we  put  on  enough  unloaders  to  just 
eat  the  pipe."  The  result  of  this  attempt  at  forced 
feeding  was  the  acute  industrial  indigestion  shown  by 
the  photographs.  Men  in  the  kiln  rolled  pipe  to  men 
at  the  door.  Men  at  the  door  rolled,  them  to  men  on 
the  chute.  Men  on  the  chute  rolled  pipe  to  men  on 


FIG.   56.      UNSTANDARDIZED   CONDI  LIONS 

A  large  crew  of  men  rolling  the  product  or  carrying  it  instead  of 

wheeling. 

285 


286         EXECUTIVE  STATISTICAL  CONTROL 

the  ground — who  rolled  them  to  still  other  men  on  the 
ground,  until  the  poor,  mishandled  pipe,  frayed,  dusty 
and  ragged,  reached  the  men  at  the  pile.  The  clatter 
was  terrific,  and  the  crew  resembled  nothing  so  much 
as  monkeys  climbing  over  one  another  in  a  cage. 

Out  of  the  nine  men  shown  in  the  first  photograph, 
three  are  actually  doing  something.  The  other  six  are 
dedicated  to  strenuousness  and  haste.  The  second 
picture  shows  eight  men.  Try  to  find  one  who  is 
accomplishing  anything.  The  efficiency  of  the  crew 
is  about  equal  to  that  of  the  unfortunate  loser  of  an 
election  bet  who  undertakes  to  propel  a  peanut  down 
Main  Street  with  his  nose! 

Figure  57  shows  the  same  sort  of  pipe  being  un- 
loaded after  the  equipment  was  standardized — and 
the  crew  incidentally  cut  in  half.  It  will  be  observed 
that  we  have  one  man  moving  eight  pipe,  on  a  bar- 
row, instead  of  eight  men  rolling  one  pipe  on  the 
ground.  Note  also  the  difference  in  the  attitude  and 
expression  of  the  workmen. 

Figure  58  illustrates  the  acme  of  unstandardized 
equipment.  By  courtesy,  the  vehicle  shown  was 
known  as  a  "dump-car."  You  will  observe  the  two 
colored  gentlemen  holding  it  up  as  their  co-laborer 
shovels  the  material  out  onto  the  ground.  Everybody 
was  working  hard  except  the  mule,  who  was  enjoy- 
ing a  rest  period.  Under  the  circumstances  we  can 
only  mark  the  labor  100  per  cent  efficient,  as  far  as 
effort  goes.  The  efficiency  of  the  equipment  is  some- 
where about  the  vanishing  point. 

Standardization  Solves  the  Executive's  Problems. 
— The  executive,  then,  who  would  insure  the  most 


FIG.    57.      STANDARDIZED    CONDITIONS 

The  same  product  as  in  Figure  56  at  the  same  plant, 
changed  morale  of  the  crew  now  on  bonus. 


Note  the 


FIG.    58.      THE    ACME    OF    UNSTANDARDIZED    EQUIPMENT 

A  three  man  dump  car — not  to  mention  the  mule. 

287 


288         EXECUTIVE  STATISTICAL  CONTROL 

effective  use  of  the  machinery  and  of  the  equipment  in 
which  the  company's  money  is  invested,  must  be  able 
to  assure  himself  at  all  times  that  the  maximum 
amount  of  it  is  in  use.  Further,  he  must  be  certain 
that  the  machinery  in  use  is  being  utilized  to  the  best 
advantage.  Finally,  he  must  be  satisfied  that  the 
equipment  which  is  being  used  effectively  is  of  the 
kind  best  suited  to  the  work  which  must  be  per- 
formed. The  answer  to  all  these  questions  is  stand- 
ardization. Once  standardization  has  become  an  ac- 
complished fact,  his  departmental-efficiency  charts  tell 
him  just  how  nearly  each  department,  and  the  whole 
plant,  approaches  the  predetermined  task — the  practi- 
cal ideal  that  has  been  set  up  as  a  reasonable  goal  for 
the  man,  for  the  machine,  and  for  the  management. 


CHAPTER  XVI 
GRAPHIC  TECHNICAL  CONTROL 

Scientific  Method  Applicable  to  Every  Plant.— In  an 

earlier  chapter  I  quoted  the  Federal  Trade  Commis- 
sion in  regard  to  the  two  general  methods  of  manu- 
facture— the  job  system  and  the  continuous-produc- 
tion system.  Sanford  E.  Thompson,  in  the  Bulletin  of 
the  Taylor  Society,  states  the  situation  more  fully  as 
follows: 

Every  plant  presents  the  necessity  for  all  the  principles 
I  have  indicated  (i.e.,  Dr.  Taylor's  basic  principles  of 
Scientific  Management),  but  the  principles  vary  as  to  relative 
prominence  in  different  plants.  Considered  from  the  point  of 
view  of  method  of  attack  and  manner  of  treatment,  industrial 
plants  may  be  considered  in  three  groups,  in  which  variously 
predominate : 

(1)  Scientific  research,  required  for  a  plant  where  produc- 
tion is  handled  as  a  whole  by  a  continuous  flow,  as  in  a  paper 
mill  or  in  a  pulp  mill,  or  a  cement  mill,  and  where  the  prin- 
cipal study  must  be  devoted  to  standardization  of  methods 
and  improvement  in  quality. 

(2)  Planning  and  routing,  required  as  the  first  essential 
where,  as  in  a  printing  shop  or  a  shop  manufacturing  miscel- 
laneous but  standard  products  with  independent  machines, 
these  also  involving  much  detail  because  of  small  orders  or 
numerous  parts. 

(3)  Analysis  and  detail  instruction,  required  as  the  chief 
essential,  such  as  in  a  machine  shop,  along  with  complex  plan- 
ning and  routing. 


*  290         EXECUTIVE  STATISTICAL  CONTROL 

The  point  which  I  wish  to  emphasize  is  that  "every 
plant  presents  the  necessity  for  all  the  principles," 
even  though  "the  standardization  of  methods  through 
scientific  research"  looms  largest  in  connection  with 
the  continuous-production  type  of  factory.  I  have 
already  defined  and  discussed  the  scientific  method. 
The  application  of  this  method  to  various  processes 
of  manufacture  and  the  method  of  their  subsequent 
control  by  the  executive,  forms  the  subject  matter  of 
this  chapter. 

"Speed"  Parkin — one  of  Dr.  Taylor's  assistants  in 
his  experimental  work  in  cutting  metals — an  expert 
who  can  probably  get  more  production  from  any  given 
machine  than  any  other  man  in  the  country,  had  a 
fixed  rule  of  procedure:  "Increase  the  speed,  feed, 
and  depth  of  cut  until  the  machine  busts,  set  her  one 
notch  back,  and  then  proceed."  While  I  would  not 
advise  the  novice  to  take  this  advice  too  literally, 
I  realize  that  it  leads  us  to  the  consideration  of  the 
facts  that  there  is  some  point  at  which  most  machines 
"bust,"  and  that  different  types  of  machines  "bust" 
in  different  places.  "Speed"  Parkin  would  have  had 
to  modify  his  rule  if  the  scientific  method  had  been 
applied  in  the  construction  of  metal-working  ma- 
chinery as  thoroughly  as  it  was  supposed  to  have 
been  applied  in  the  case  of  the  famous  "one-hoss 
shay."  It  will  be  recalled  that  every  part  of  that 
wonderful  rig  was  so  perfectly  constructed  that,  in- 
stead of  wearing  out  and  breaking  down  in  one  weak 
point  after  another,  as  its  predecessors  had  done,  it 
all  wore  out  at  once  and  collapsed  under  its  owner. 
Seriously,  the  point  is  this:  Had  the  scientific 


GRAPHIC  TECHNICAL  CONTROL  291 

method  been  applied  to  the  design  of  metal-working 
machinery  in  the  beginning,  instead  of  each  machine 
being  strengthened  at  one  point  after  another,  as  each 
part  in  turn  was  found  to  be  weak,  the  speeding  up 
of  machine  production  would  have  progressed  much 
more  rapidly,  and  there  would  be  fewer  *  *  lame  ducks ' ' 
in  every  machine  shop  today. 

Scientific  Methods,  Not  "Trade  Secrets."— Most  ma- 
chines and  most  processes  are  the  result  of  gradual 
growth  under  the  sway  of  that  powerful  reactionary 
voodoo,  "years  of  experience".  We  have  seen  what 
happened  to  that  fetich  in  the  case  of  bricklaying 
when  it  came  in  contact  with  the  scientific  method. 
Cold-blooded  analysis  of  almost  any  condition  or  pro- 
cess to  which  the  method  has  not  been  previously  ap- 
plied, will  yield  startling  results. 

In  the  old  days  of  pottery-making,  the  manufacturer 
hired  a  glaze-maker  who  retired  to  a  locked  room  and 
with  great  secrecy  mixed  together  certain  ingredients, 
into  which  the  unburned  plates  were  later  dipped  in 
order  that  they  might  take  on  the  glaze  that  makes 
plates  and  similar  articles  impervious  to  moisture. 
The  owner  of  the  factory  never  knew  what  it  was  that 
made  his  china  saleable.  In  spite  of  the  fact  that  a 
large  amount  of  experimental  work  had  been  done 
which  cost  him  much,  in  wages  and  in  spoiled  product, 
the  knowledge  of  the  glaze-maker  was  never  acces- 
sible to  the  manufacturer.  If  the  glaze-maker  got 
drunk,  the  factory  shut  down.  If  the  glaze-maker  de- 
manded ridiculous  wages,  he  generally  got  them.  The 
manufacturer  was  absolutely  at  the  mercy  of  his 
glaze-maker. 


292         EXECUTIVE  STATISTICAL  CONTROL 

The  same  state  of  affairs  prevailed  in  other 
branches  of  the  pottery  industry.  Kiln-burners  jeal- 
ously guarded  their  "secrets,"  and  men  in  other  de- 
partments who  thought  they  could  "get  away  with 
it,"  indulged  in  varieties  of  mumbo-jumbo  calculated 
to  impress  the  boss  with  their  indispensability. 

We  have  the  same  thing  in  "limited  apprentice- 
ship" in  various  trades.  The  English  trade-unionist 
just  began  to  learn,  under  the  stimulus  of  war  condi- 
tions, that  limited  apprenticeship  and  limited  output 
must  be  replaced  by  unlimited  co-operation  between 
employer  and  employee,  if  the  destiny  of  each,  and  of 
their  country,  was  to  be  realized  to  the  fullest  possible 
extent. 

In  the  pottery  industry,  the  manufacturers  were 
driven  to  establish  trade  schools  where  young  men 
could  learn  the  science  of  ceramics.  These  schools 
brought  to  bear  on  the  subject  the  science  of  chemis- 
try, of  physics  and  of  mechanics.  Ignorance  and 
prejudice  were  replaced  by  exact  knowledge.  Hokus 
pokus  behind  closed  doors  gave  way  to  scientific 
methods  practiced  in  the  open.  Men  who,  under 
former  methods,  could  cover  up  their  deficiencies  at 
the  expense  of  the  industry,  went  to  the  trade  schools. 
The  result  was  the  rehabilitation  of  the  industry. 

Scientific  Management  and  Manufacturing. — As  in 
the  case  of  the  application  of  the  scientific  method  to 
any  other  activity,  the  first  step  in  the  application  of 
scientific  management  to  the  control  of  manufactur- 
ing processes  consists  in  the  collection  of  data.  As 
an  instance  of  what  the  compilation  of  data  will 
effect,  I  shall  cite  the  example  of  what  took  place  in 


GRAPHIC  TECHNICAL  CONTROL  293 

the  foundry  of  a  large  steel  mill  in  Pennsylvania.  In- 
vestigation by  an  industrial  engineer  disclosed  the 
fact  that  fifty  per  cent  of  the  loss  throughout  the 
plant  was  due  to  cracked  castings.  Just  what  this 
loss  amounted  to,  day  by  day,  or  just  where  it  oc- 
curred, neither  the  foreman  nor  the  officials  of  the 
company  knew.  They  simply  knew  that  there  was  a 
certain  amount  of  loss  due  to  cracked  castings,  that 
there  always  had  been  such  a  loss,  and  that  probably 
there  always  would  be  such  a  loss.  They  considered 
it  one  of  the  necessary  evils  of  the  business,  and 
charged  their  customers  accordingly. 

The  investigator  considered  this  loss  excessive,  and 
instituted  the  use  of  a  series  of  diagrams  to  show  ex- 
actly where  the  waste  occurred  in  each  case.  Rough 
sketches  were  made,  showing  just  where  cracks  ap- 
peared in  each  casting.  Before  long,  the  tabulated 
data  showed  that  while  cracks  occurred  on  occasion 
in  a  good  many  parts  of  the  castings,  the  majority  oc- 
curred in  a  few  especially  favored  spots.  The  reasons 
why  the  cracks  occurred  in  these  particular  places 
were  investigated,  and  the  causes  were  traced  back  to 
their  original  source.  The  result  was  that  the  losses 
due  to  cracked  castings  were  reduced  from  a  total  of 
fifty  per  cent  in  the  whole  plant  to  three  per  cent. 

In  an  automobile-body  plant,  analysis  of  the  output 
showed  that  the  limiting  factor  in  the  flow  of  the 
product  through  the  factory,  occurred  in  the  enamel- 
ing department.  The  company  had  more  work  than 
it  could  do,  and  customers  were  clamoring  for  the 
product.  The  installation  of  new  ovens  was  con- 
templated, but,  owing  to  the  layout  of  the  plant,  to 


294         EXECUTIVE  STATISTICAL  CONTROL 

put  them  in  would  have  meant  serious  loss  of  produc- 
tion while  the  work  was  being  done.  Data  were  col- 
lected concerning  both  just  what  was  done  in  the 
enameling  department,  and  why  it  was  done,  and 
recommendations  were  made.  The  general  manager, 
who  was  a  worshipper  at  the  shrine  of  experience, 
and  who  therefore  did  not  feel  that  suggestions  eman- 
ating from  any  one  who  had  not  served  years  of  ap- 
prenticeship as  enameler,  were  worthy  of  serious  con- 
sideration, sprang  the  slogan  of  his  type — "It  can't  be 
done."  The  engineer's  answer  was,  "We  have  been 
doing  it  for  a  week."  The  general  manager  walked 
out  of  the  conference  without  saying  a  word  more, 
and  within  six  months  the  output  of  the  ovens  had 
been  increased  fifty  per  cent. 

The  very  collection  and  tabulation  of  the  data  often 
goes  a  long  way  toward  solving  the  difficulty.  Notice 
the  accompanying  heat  chart,  Figure  59,  for  instance. 
This  chart  was  intentionally  arranged — in  order  to 
show  up  the  absurdity  of  the  situation — to  look  like 
the  dress-making  patterns  our  mothers  used  to  cut 
from  Harper's  Bazar.  In  this  particular  case,  the 
furnace  men  knew  that  sometimes  the  heats  took  a 
good  deal  longer  time  than  they  did  at  other  times. 
They  were  not  particularly  concerned  over  the  causes 
of  such  phenomena,  since  they  were  not  paying  for 
the  fuel,  and  since  their  wages  were  in  no  way  af- 
fected by  the  fuel  consumption  or  by  the  monthly  fur- 
nace output.  If  the  management  noticed  the  variation 
and  made  inquiry,  the  usual  stock  excuses  about  poor 
fuel  and  unfavorable  weather  conditions  brought  the 
investigation  up  short  against  a  brick  wall. 


GRAPHIC  TECHNICAL  CONTROL 


295 


FIG.  59.      HEAT  CHART 
Showing  the  existing  conditions  and  their  absurdities. 

Technical  apparatus  with  which  to  measure  the 
temperature  was  installed,  and  the  exact  condition  of 
the  furnace  every  three  hours  was  recorded.  The 
process  was  studied  and  it  was  found  that  the  tem- 
peratures between  which  certain  changes  in  the  prod- 
uct took  place,  could  be  fixed  between  definite  limits. 
These  limits  are  shown  on  the  chart  under  Period  I, 
Period  II,  and  so  on.  With  the  same  product,  in  the 
same  condition,  fired  by  the  same  men,  with  the  same 
fuel,  there  was  no  excuse  for  a  crazy  chart  such  as 


296         EXECUTIVE  STATISTICAL  CONTROL 

that  shown.  Other  facts  were,  of  course,  collected  at 
the  same  time,  and  the  net  result  was  a  reduction  of 
over  forty  per  cent  in  the  fuel  bill. 

Separate  Department  for  Collecting  Data.  -In  cer- 
tain instances,  the  collecting  of  process  data  requires 
the  creation  of  a  separate  department.  This  is  es- 
pecially true  in  the  case  of  those  operations  which  re- 
quire a  continuous  follow-up — a  planning  and  dis- 
patching of  their  own — to  prevent  their  interference 
with  the  operation  of  other  departments  as  planned 
in  the  central  planning  department.  Very  often  a 
branch  of  the  central  planning  department  can  be 
combined  to  advantage,  with  the  technical-control 
headquarters.  Pressure  gauges,  galvanometers,  and 
various  other  technical-control  apparatus  can  be  lo- 
cated in  the  same  room  as  this  sub-planning  depart- 
ment, and  the  men  who  control  the  processes  can  thus 
be  brought  into  intimate  touch  with  those  who  plan 
the  work  of  their  department. 

Figure  60  illustrates  an  instance  of  this  sort.  The 
right-hand  building  is  the  office  of  the  chief  dispatcher, 
and  the  one  at  the  left  houses  the  pyrometers  and  other 
technical  apparatus  by  means  of  which  certain  furnace 
operations  are  controlled.  The  work  of  the  furnaces  is 
planned  and  dispatched  from  the  same  building  by  the 
" burning  dispatcher,"  who  works  in  close  co-operation 
with  the  chief  dispatcher. 

Figure  61,  shows  the  desk  of  the  "  burning  dis- 
patcher," located,  in  this  instance,  in  a  room  adjoin- 
ing the  pyrometer  room,  previously  illustrated.  Upon 
it  can  be  seen  the  various  records  and  charts,  some  of 
'them  under  glass,  which  are  used  in  planning  the 


FIGS.  60  and  61.    ABOVE  :     CHIEF  DISPATCHER  AND  DEPART- 
MENTAL DISPATCHER  LOCATED  IN  ADJOINING  OFFICES 
BELOW:      DEPARTMENTAL  DISPATCHER'S   CONTROL  DESK 
297 


298          EXECUTIVE  STATISTICAL  CONTROL 

work  of  the  department.  At  this  desk,  the  facts 
gathered  by  the  application  of  the  scientific  method 
to  the  study  of  the  process,  were  examined,  and  the 
laws  governing  the  process  were  deduced.  In  addi- 
tion, the  work  of  the  department  was  planned  and 
fitted  into  the  departments  under  the  control  of  the 
chief  dispatcher,  who  in  this  case  could  be  consulted 
through  the  window  shown  in  the  right-hand  upper 
corner  of  the  picture. 

Showing  the  Men  Results. — Figure  62  shows  one 
of  the  pyrometers  by  means  of  which  the  temper- 
ature of  any  one  of  the  eighteen  furnaces  can  be  read 
at  a  glance  by  throwing  a  switch.  The  slide  in  the 
foreground  holds  the  sheets  upon  which  the  men  who 
are  actually  firing  the  furnaces  record  the  progress  of 
their  work. 

The  importance  of  bringing  the  men  who  are  ac- 
tually doing  the  work  into  close  contact  with  the 
apparatus  which  records  its  progress,  cannot  be  too 
strongly  emphasized.  A 'man  required  to  shovel  coal 
from  eight  to  twelve  hours  a  day  has,  at  best,  a  job  of 
little  interest.  If,  however,  you  can  help  him  to  see 
what  he  is  doing,  to  understand  why  he  is  doing  it, 
and  if  you  can  interest  him  in  the  results  obtained,  as 
fast  as  he  obtains  them,  you  are  adding  greatly  to  his 
zest  for  his  work  and  to  his  satisfaction  with  his  job. 
If  you  lock  up  your  technical  apparatus,  he  is  likely 
to  regard  it  principally  as  a  means  of  spying  upon  his 
activities,  and  to  expend  his  ingenuity  upon  devising 
methods  of  foiling  it.  If  you  can  teach  him  that  it  is 
one  of  his  own  tools,  put  there  for  his  convenience — 
a  sort  of  automatic  base-ball  score  board — by  means 


299 


300         EXECUTIVE  STATISTICAL  CONTROL 

of  which  he  can  tell  just  how  well  he  is  playing  his 
game,  his  attitude  toward  it  will  be  entirely  different. 
Moreover,  his  accomplishment  by  means  of  it  will  be 
vastly  greater — especially  if  he  gets  a  bonus  at  the 
end  of  the  pay  period  for  playing  skilfully. 

The  next  photograph,  Figure  63,  shows  a  furnace 
man  operating  a  draft  gauge.  This  particular  man  at 
first  couldn't  understand  English,  but  once  he  com- 
prehended the  use  of  the  thing,  and  once  his  interest 
was  aroused,  he  came  into  the  dispatch  office  with  the 
regularity  of  clockwork,  took  down  his  gauge  from 
the  nail  where  it  hung,  trotted  around  from  one  kiln 
to  another,  took  his  readings,  and  wrote  them  down 
on  the  chart — quite  as  correctly  as  some  of  the  techni- 
cal graduates  engaged  in  the  same  work,  and  with  a 
good  deal  more  pride. 

Some  of  the  best  team  work  I  ever  saw  occurred 
in  the  particular  department  in  which  this  man  was 
located.  The  policy  of  co-operation  between  the  dis- 
patching force  and  the  firemen  was  such  that  luncheon 
was  generally  shared  by  them — a  pail  of  hot  maca- 
roni from  "Dago  Hill"  on  the  same  bench  with  the 
lunch  of  the  college  graduate.  What  wasn't  discussed 
at  these  parties  wasn't  worth  discussing.  The  fire- 
men got  the  partnership  idea  so  strongly  that  it  was 
almost  embarrassing  at  times — for  they  were  in  part- 
nership with  the  firm  under  their  bonus  system,  and 
took  an  intense  interest  in  all  the  firm's  affairs.  The 
climax  occurred  one  day  when  Meoli  sized  up  a  new 
minor  executive  as  "that  fat  fellow — rain  in  front, 
rain  behind,  'no  use  to  run'."  Meoli  was  quite  right 
about  him.  The  executive  was  fat,  and  he  didn't 


GRAPHIC  TECHNICAL  CONTROL  301 

know  enough  to  come  in  out  of  the  rain.  The  man- 
agement several  months  later  found  out  what  Meoli 
had  known  all  along — and  "that  fat  fellow"  was 
urged  to  depart.  Such  interest  in  a  company's  wel- 
fare is  worth  cultivating  in  the  men.  It  is  possible 
only  when  the  latter  are  convinced  that  they  enjoy 
the  company's  complete  confidence. 

Getting  Results  from  Charts. — One  of  the  depart- 
ment charts  is  illustrated  in  Figure  64.  By  means  of 
the  chart  the  "burning  dispatcher"  kept  track  of  his 
"kiln  turnover,"  and  was  automatically  urged  to  in- 
vestigate unusually  long  turnovers  in  order  that  he 
might  reduce  the  burning  time  as  well  as  the  amount 
of  coal  consumed,  and  investigate  unusually  short 
turnovers  with  a  view  to  making  such  gains  perma- 
nent. This  chart  is  of  interest  also,  as  an  almost 
perfect  illustration  of  the  ratchet  principle  discussed 
in  previous  chapters. 

The  next  two  charts,  Figures  65  and  66,  illustrate 
what  was  accomplished,  in  one  instance,  by  means  of 
a  combination  of  technical  knowledge,  the  scientific 
method,  and  the  centralization  of  control  in  the  dis- 
patch office  as  described.  It  should  be  noted  that,  be- 
sides the  reduction  in  burning  time,  the  number  of 
heat  retrogressions  was  also  reduced  very  materially. 
Together,  these  two  changes  reduced  the  coal  con- 
sumption 17  per  cent  in  one  case,  and  38  per  cent  in 
the  other. 

The  method  of  boiling  down  the  results  of  such 
work  as  that  described  to  a  few  figures  which  give  the 
management  a  grasp  of  the  whole  situation,  is  illus- 
trated by  the  chart  in  Figure  67.  In  this  connection, 


302 


EXECUTIVE  STATISTICAL  CONTROL 


z.    16  8  9  6  10  18  14  2    I    7  II  1  15  5  13  4  12  16  8  9 
KILNS   IN  JULY.  CURRENT  YEAR 


FIG.  64.      KILN  TURNOVER  CONTROL  GRAPH 

An  example  of  the  practical  application  of  the  ratchet  principle  to  a 
manufacturing  process  by  graphic  technical  control. 

chief  executives  should  be  warned  against  trying  to 
carry  too  much  statistical  detail  into  their  own  offices. 
It  is  very  easy  to  spend  a  lot  of  money  keeping  up  a 
lot  of  charts  which  are  used  so  occasionally  that  they 
might  better  be  kept  at  the  point  of  use — in  the  dis- 
patch office,  for  instance.  If  an  executive  has  too 


GRAPHIC  TECHNICAL  CONTROL 


303 


DAYS 
7-00                  23456            78 

9          10 

fNo.SI3 

L 

PCRATURC 

Curm 
Kiln  No. 
iNt>66  in 
r. 
-n  Na-513 
-rent  Ye 

AND  Can. 
-r.  . 
204 

f" 

>.66 

i    TtM 
^* 

/ 

/ 

Bur 
Yea 

July  Curnfbf 

mjfrilf  

ir.          f 

0.80 
0.70 
060 
0.50 

1 

ns  Coo 
Prodi 

/per  To 
;c/ 

Z  

5    40° 

i 
i 

Cu 

1 

\ 

No  0 

| 

UJ 

/ 

£ 

•z. 

p 

X 

Q 

/ 
§ 

/ 

/ 

ItoSO^ 

No.ee 

^_^ 

7 

E^ 

r* 

06  fi  18  24  36    -48    60    71    84    96    106  120  BZ   144   156    168  180  197  204216 
HOURS 

FIG.    65.      RESULTS    OBTAINED    THROUGH    APPLICATION    OF    SCIEN- 
TIFIC   METHODS   TO   FURNACE   OPERATIONS 

many  charts,  he  never  looks  at  any  of  them.  The 
selection  of  just  what  should  be  forced  upon  his  at- 
tention, and  the  elimination  of  what  he  should  not  be 
bothered  with,  therefore  become  a  matter  for  the  exer- 
cise of  considerable  discrimination.  Besides,  rather 
than  depend  too  much  upon  charts,  it  is  much  better 
for  the  executive  to  make  a  trip  through  the  works 
occasionally  and  to  take  up  matters  of  detail  on  the 
ground,  where  physical  evidence  of  the  question  under 
discussion  is  before  him. 

The  burning-control  chart,  in  the  first  space,  shows 
the  executive  what  it  is  most  vital  for  him  to  know, 
i.e.,  how  nearly  the  department  approached  the  realiz- 
able standard.  The  second,  fifth,  and  sixth  spaces 


304 


EXECUTIVE  STATISTICAL  CONTROL 


DAYS 
1             Z            3           4             567              89          10 

1       1900 

fN° 

F' 

f 

No  ISO 

i       1700 
§1500 

7 
6 

*M  PERJURE  AND  COM.  ClIKYC 

urn  NO.ISO  inSepf.  Carre 
'      -  211  •  HOY. 

I 

•jf  YftR 

1 

/ 

/ 
/ 

/ 

*  1500 

/ 
/ 

/ 

12  1100 

/ 

I 

/ 

Tons  Coal  per 
Product 

Ton 

/ 

0.70 

\ 

gooo 

1 
1 

1 

oo.oo 
: 

" 

\ 

/ 

/ 

Y//\ 

j_^~>  — 

.^' 

^ 

^ 

0.40 

100 

Vo.Wy> 

177^ 

.?£. 

•       >w  

/\r-' 

No/SO 

06  IZ  1824    36    48     60    73    84    96    108   120   IK  144    156    168  160   192   204216 
HOURS 

FIG.  66.      THE  EFFECT  OF  CENTRALIZED  CONTROL  AND  SCIENTIFIC 
METHODS  UPON  A  FURNACE  OPERATION 

show  the  factors  that  control  this  percentage  of  realiz- 
able accomplishment — quality,  material,  and  labor. 
Quantity  is,  in  this  case,  controlled  by  material  (coal), 
since  the  longer  the  product  remains  in  the  kiln,  the 
less  product  the  department  can  process.  The  third 
and  fourth  spaces  show  the  detail  of  the  second  space, 
and  answer  the  question:  If  the  quality  was  not  what 
it  should  have  been,  what  was  responsible? 

Figure  67  illustrates,  also,  the  exception  principle. 
If  the  first  space  indicates  a  100  per  cent  perform- 
ance, the  executive  need  not  take  time  to  investigate 
further.  If  there  is  a  drop  in  efficiency,  he  can  locate 
the  trouble,  nine  times  out  of  ten,  by  reference  to  the 
other  spaces.  In  the  tenth  case,  he  can  secure  the  an- 
swer at  the  dispatch  office. 


GRAPHIC  TECHNICAL  CONTROL  305 

Another  point  of  interest  in  connection  with  this 
chart,  is  the  drop  in  efficiency  in  February.  At  this 
time  the  men  in  the  department  had  had  a  good  taste 
of  bonus  in  December.  They  conceived  the  idea  that 
all  they  needed  to  do  was  to  keep  on  cutting  the  burn- 
ing time,  and  the  coal  consumption  would  keep  on 
decreasing  until  they  fairly  rolled  in  wealth.  So  they 
cut  the  coal  in  January  down  to  0.41  (Section  5,  Jan. 
15).  As  a  result  they  spoiled  a  lot  of  product  by 
rushing  it  too  fast  (Section  2,  Jan.  15).  In  conse- 
quence, they  pulled  their  efficiency  down  to  82  per 
cent  and  lost  most  of  their  bonus.  The  advantage  of 
making  haste  slowly  thus  having  been  brought  home 
to  them,  they  increased  their  burning  time  (and  their 
coal  consumption)  and  their  bonus,  until  such  time  as 
they  had  learned  how  to  proceed  more  surely.  We 
find  them — because  they  learned  this  lesson — above 
100  per  cent  efficiency  in  May,  with  the  percentage  of 
first-quality  product  above  standard  (92  per  cent),  and 
with  the  coal  below  0.40. 

Insuring-  Competent  Management. — It  would  be  pos- 
sible to  multiply  indefinitely  instances  that  illustrate 
what  can  be  accomplished  by  the  combination  of  tech- 
nical knowledge,  scientific  research,  and  statistical 
executive  control.  The  situation  in  each  case  must  be 
studied  impartially,  the  scientific  method  must  be  ap- 
plied fearlessly,  and  the  machinery  of  control  must  be 
so  organized  that  progress  will  be  relentless.  Under 
such  circumstances,  the  knowledge  becomes  an  asset 
of  the  company,  instead  of  the  ''trade  secret"  of  an 
individual.  The  best  brains  available — whether  of 
workmen,  of  executives,  or  of  outside  experts — are 


IIC 
u   100 
1    00 

§  80 

°-     70 
60 
100 
90 

80 

§7° 

f  eo 
B  20 

£     10 

0 
10 
0 
0.60 
0.70 
$0.60 

£  0:50 

0.40 
0.30 
6.0 
SO 

w     4.0 
a 

i  3-° 

1     2.0 
1.0 
0 

A/ 

w/w/  Control 

,„ 

//!/ 

£w 

J 

r~ 

r 

s  / 

"\ 

/ 

sx 

V 

/ 

j  /i 

\^ 

/ 

/f 

/  ..-Total  Bur 

nine 

ff/ 

V 

c/«r 

<y 

= 

/\ 
NOT 

fa  figuring  efficiency  the 
f  prer/ous  period  i$  fjgurec 

r* 

(?/7/£J 

yeo 

fff, 

fell 

SSf> 

W^ 

*fo 

-the 

/^ 

^, 

an 

*5S  t 

^00 

rt*f 
KT 

/to./ 
P 

I 

' 

"'^ 

"\ 

/" 

'V 

/\ 

r 

sx* 

to. 

•J 

—  /?< 

< 

-ad 
n  E 

fr?0  ^ 
'fide 

•<r^ 
tcy 

ahe 
'urv( 

\ 

L/ 

f        . 

AtaJ 

1 

2 

V 

X1 

**c 

a 

?NTA 
<5S/ 

-,e  A 
IHM 

~COM 

cr- 

9 

) 

X 

jt 

^ 

V 

V 

S 

^« 

veil 
PR 

'A0£ 
ODU 

JPOJ 

CD. 

§7 

V 

- 

~^s 

^x 

s. 

/ 

„ 

5C3< 
\ 

'/^ 

•  Ton 

Pro 

Juci 

r 

0/1^ 

COA 

SUM 

PTIO 

\ 

^•^ 

^ 

^ 

X 

/^*. 

/~v 

s  —  ^- 

•^ 

X 

y 

M?r 

-Ho 

jrsf 

erT 

n  d. 

al 

LA 

OR 

~"~ 

•-^ 

^^^ 

" 

~-- 

i> 

\f 

^  

^  

^_x 

^ 

iu^          H5  IS  30  30  15  30  15  3015  JO  15  JO  15  JO  15  30  15  30  IS  JO  15  JO  1530  15  50  15  JO  15  JO  15  30  15 
Sg2      SEPT.  OCT.  NOV  DEC  JAN.  FEB.  MA.R.APR.M/W  JUNE  JULV  AUG.5EPT.OCT  NOV.  DEC 
§£>                                                   CURRENT   YE/M3 

FIG.    67.      CHART    SHOWING    THE    REDUCTION    OF    THE    ESSENTIAL 

FACTORS  OF  A  TECHNICAL  PROCESS  TO  A  SINGLE  CURVE 

306 


GRAPHIC  TECHNICAL  CONTROL  307 

brought  to  bear  upon  the  situation.  Briefly,  then,  ex- 
act and  competent  management  is  continuously  as- 
sured, since: 

a.  Once  a  best  method — either  of  doing  the  work 
or  of  meeting  a  condition — is  determined,  it  becomes 
a  permanent  record  of  the  company,  so  that  the  ex- 
pense of  solving  the  problem  does  not  have  to  be  in- 
curred more  than  once.     Costly  mistakes  are  not  re- 
peated, and  the  concern  ceases  to  be  the  personal  ex- 
perimental school  of  new  executives. 

b.  The   capabilities    of   various    subordinates    are 
more  exactly  determined,  so  that  the  likelihood  of 
mistaken  promotions,  which  are  costly,  are  reduced. 

c.  Trade  secrets  become  the  property  of  the  com- 
pany. 

d.  Faults,  whether  of  men  or  of  managers,  are 
automatically  traced  to  their  source. 

e.  Exact  and  definite  knowledge  takes  the  place  of 
bluffing;  this  applies  to  men,  foremen,  superintend- 
ents, and  managers. 

f .  Unnecessary  executive  work  is  eliminated  by  the 
introduction  of  the  exception  principle,  which,  while 
it  brings  only  abnormal  conditions  to  the  attention  of 
the  management,  brings  those  forcibly  to  their  atten- 
tion. 


CHAPTER  XVII 
PLANNING  AND  DISPATCHING  CONTKOL 

Casual  Management  and  Its  Results. — When  depart- 
mental outputs  under  the  continuous-production  sys- 
tem of  operation  are  studied  intensively,  the  effect  of 
lack  of  exact  and  scientific  planning  methods  becomes 
evident  at  once,  tinder  casual  management,  the  out- 
put flows  from  department  to  department  by  fits  and 
starts.  The  stream  is  dammed  up  in  one  depart- 
ment until  work  becomes  hurried  and  careless.  The 
wrathful  descent  of  the  old-time  superintendent  upon 
the  unlucky  foremen,  only  adds  to  the  confusion  as 
he  tongue-lashes  such  subordinates  as  are  unlucky 
enough  to  cross  his  path.  Workmen  rush  wildly 
about  making  more  mistakes,  material  is  spoiled,  and 
men  stand  idle  while  the  superintendent  is  berating 
the  few  who  first  attracted  his  attention.  Meantime, 
men  in  the  preceding  departments  loaf  because  floors 
and  benches  are  piled  high  with  work  that  cannot 
flow  away  from  them,  and  men  in  succeeding  depart- 
ments loaf  because  no  work  can  flow  to  them. 

The  accompanying  chart,  Figure  68,  illustrates  a 
typical  situation  of  this  kind.  The  normal  produc- 
tion in  this  shop,  we  shall  assume,  should  be  six 
hundred  tons.  Department  A,  at  the  time  we  are 
considering  was  so  busy  performing  the  first  oper- 
ation on  the  raw  material  on  Tuesday  and  Wednes- 


PLANNING  AND  DISPATCHING   CONTROL    309 


< 

WON. 
TUES. 
WED. 
THUR. 
FRJ. 
SAT. 
MON. 
TUES. 
WED. 
THUR. 
FRI. 

TONS 

—          r\3          W           Jk          Cn         O>          -4 
0          O          0           O          O          0          0 
3^00           0000 

a 

1L 

j 

"^ 

^ 

s 

NT 
•. 
1"^*- 

$ 

\ 
\ 

\ 

/? 

"\ 

1 

/ 

•s 

X 
N 

\ 

/ 

X 

/ 

/ 

\ 

^ 

^ 

X 

\ 

\ 

/' 

\ 

/ 

/ 

/' 

^ 

^ 

1 

/ 

s~ 

FIG.   68.      DEPARTMENTAL   OUTPUT    CHABT 


310          EXECUTIVE  STATISTICAL  CONTROL 

day  that  no  semi-processed  stock  came  to  Depart- 
ment C,  which  meantime  experienced  a  "famine." 
The  superintendent  got  busy  in  A  on  Thursday,  and 
"by  main  strength  and  awkwardness"  pushed 
enough  of  the  stuff  through  the  second  operation 
performed  in  A  so  that  by  Friday  enough  of  it 
reached  C  to  cause  C's  output  to  increase.  It  con- 
tinued to  increase  until  it  reached  its  peak  on  the 
second  Tuesday.  B  meantime  began  to  be  starved 
for  work,  so  that  by  Saturday  its  output  began  to 
fall  off. 

As  will  be  observed,  the  flow  of  output  under  this 
system  consists  of  a  series  of  peaks  and  valleys  in- 
dicating a  progressive  feast  and  famine  alternating 
in  each  department  in  turn.  The  number  of  em- 
ployees in  each  department  of  course  remains  virtu- 
ally constant.  Since  there  is  a  limit  to  the  amount 
of  speeding  up  a  department  will  stand,  but  no  limit 
to  the  amount  of  loafing  that  can  be  done  when 
there  is  no  work  ready,  the  expense  of  production 
remains  constant  while  the  product  averages  lower 
than  would  be  the  case  were  the  flow  steady.  Thus, 
in  the  case  cited  the  output  averages  486  tons  for 
the  11  days,  instead  of  600  tons,  while  the  expense  is 
as  great  as  if  the  full  output  were  secured.  With  a 
payroll  of  $6000  a  day,  the  direct  labor  cost  per  ton 
under  the  "feast  and  famine"  system  illustrated, 
would  be  $12.34,  as  against  $10  under  a  system  of 
scientific  planning.  Add  the  increased  overhead  cost 
per  unit,  due  to  low  production,  and  the  loss  of  profit 
on  114  tons  a  day,  and  the  expense  of  casual  plan- 
ning at  once  becomes  evident. 


PLANNING  AND  DISPATCHING  CONTROL    311 

Time-Study  and  Job-Production  Operation. — Under 
the  job-production  type  of  operation,  analytical  time- 
study  perhaps  brings  out  the  cost  of  unscientific 
planning  more  quickly  than  anything  else.  The  fol- 
lowing is  an  extract  from  a  report  rendered  in  re- 
gard to  the  cut  and  punch  department  in  a  metal- 
working  concern.  The  department  was  rated  at  50 
per  cent  efficiency. 

The  causes  of  inefficiencies  were  as  varied  as  the  operations. 
In  a  number  of  cases,  two  operators  were  being  used  where 
one  would  have  been  sufficient.  Several  studies  show  one 
operator  working  at  different  efficiencies,  at  different  times,  on 
the  same  work.  One  of  the  commonest  inefficiencies  was  that 
of  throwing  material  on  the  floor,  from  which  it  had  to  be 
picked  up,  instead  of  piling  it  on  a  truck.  Poor  methods  of 
handling  material  were  common,  as  were  instances  of  unneces- 
sary handling.  In  some  cases  work  was  being  done  in  the 
wrong  way,  raw  material  was  lacking  or  was  unhandily 
placed,  gauges  were  not  used  where  their  use  would  have 
tripled  the  output,  and  the  wrong  machine  was  used  for  the 
work.  Machines  were  in  wrong  adjustment.  Machines  were 
changed  frequently  for  small  orders,  and  unnecessary  oper- 
ations were  performed.  We  found  operators  leaving  their 
machines  to  do  their  own  trucking,  handling  scrap  in  order 
to  perform  their  work,  and  carrying  parts  by  hand  where 
they  should  have  been  delivered  to  them  by  truck. 

There  you  have  it — casual  planning  at  its  height! 
Scientific  planning  would  have  had  the  material  de- 
livered exactly  when  it  was  wanted.  The  work  would 
have  been  scheduled  to  the  machine  best  fitted  to 
do  it.  The  number  of  operators  would  have  been 
specified.  Gauges  would  have  been  provided.  Trucks 
would  have  been  there  to  take  the  processed  metal 
away.  Work  would  have  been  scheduled  to  machines 


312          EXECUTIVE  STATISTICAL  CONTROL 

in  such  a  way  as  to  require  the  fewest  possible  num- 
ber of  changes  in  set-ups. 

I  remember  watching  a  pressman,  once,  in  a  print- 
ing establishment  clean  the  red  ink  from  his  rollers, 
cover  them  with  blue  ink,  do  a  short  job,  clean  his 
rollers  again,  and  then  use  red  ink  once  more.  He 
wasted  half  an  hour  out  of  two  hours  for  which  he 
was  paid  full  time.  In  the  same  shop,  an  elaborate 
set-up  on  a  ruling  machine  was  changed  to  a  simple 
one,  a  small  job  was  run  off,  and  then  the  machine 
was  changed  back  to  another  elaborate  job  almost 
identical  with  the  first  one.  Planning  would  have 
saved  25  per  cent  of  the  direct-labor  cost  in  the  first 
case,  and  50  per  cent  in  the  second  case. 

Scientific  Planning  and  Dispatching. — Just  how 
scientific  planning  and  dispatching  eliminate  such 
faults  as  have  been  described,  I  can  perhaps  show 
best  by  citing  Standard  Practice  Instructions  issued 
to  the  Planning  Department  of  a  foundry. 

A.      PLANNING  THE  WORK  : 

1.    Points  to  be  Considered: 

a.  No  job  is  ready  until  everything  is  ready  for 
the  job:  consequently,  the  management  of 
shop  should  be  certain  that  everything  in  the 
way  of  patterns,  flasks,  special  rigging,  and 
so  on,  will  be  in  readiness  when  the  job  is 
started. 

fe.  No  job  is  to  be  started  until  it  has  first  been 
scheduled  for  some  particular  workman. 

c.  Sufficient  work  should  be  scheduled  ahead  so 
that  there  will  be  no  likelihood  of  a  man's 
running  out  of  a  job.  It  is  far  better — in 
fact,  preferable— to  schedule  too  much  work 
rather  than  not  enough. 


PLANNING  AND  DISPATCHING  CONTROL    313 

2.  Time  for  Planning : 

Each  day,  as  early  in  the  day  as  possible,  the 
work  for  the  following  day  should  be  planned 
by  those  responsible  for  the  management  of  the 
shop. 

3.  The  Planning  Sheet: 

As  work  is  selected,  it  should  be  entered  on  the 
planning  sheet  for  the  current  day,  which  is  to 
show  for  each  man,  gang,  or  floor  the  work 
scheduled,  showing  number  wanted,  order  num- 
ber, description  of  work,  and  the  pattern  num- 
ber. 

Entries  should  be  made  in  the  same  order  as  the 
work  is  to  be  made. 

A  regular  planning  sheet  is  then  to  be  written 
up  for  the  following  day  from  the  information 
shown  by  the  revised  copy  of  the  current  day's 
planning  sheet. 

4.  Entering  Standard  Times: 

When  this  has  been  done,  the  various  items 
should  be  checked  against  the  file  of  schedules, 
to  see  if  any  of  the  work  listed  is  covered  by 
schedules.  For  such  work,  the  planning  sheet  is 
to  show  schedule  number  and  the  standard  time 
allowed.  For  new  work,  or  work  coming  in  for 
which  no  schedules  have  been  made,  an  estimate 
should  be  made  covering  such  items  as  should,  in 
the  estimation  of  the  shop  management,  be  given 
a  standard  time  which  should  be  entered  on  plan- 
ning sheet  and  estimates. 

5.  How  Issued: 

Four  copies  of  the  planning  sheet  should  be 
made,  and  distributed  as  follows: 

To  the  Core  Room. 

To  the  Industrial  Engineering  Department. 

To  the  Dispatching  Office. 

To  the  Foreman  in  each  section. 

6.  Carrying  Forward  Uncompleted  Work: 

Each  morning  the  dispatcher  is  to  take  the  plan- 
ning sheets  for  the  previous  day  and  cross  out 


314          EXECUTIVE  STATISTICAL  CONTROL 

the  work  that  has  been  made,  as  shown  by  the 
service  cards.  In  cases  where  a  balance  remains 
to  be  made,  the  number  wanted,  as  shown  by  the 
planning  sheets,  is  to  be  corrected  to  agree  with 
the  balances  on  the  service  cards.  The  planning 
sheets  for  the  current  day  should  then  be  taken 
and  compared  with  the  one  for  the  day  previous. 
If  the  work  that  was  not  completed,  as  shown 
on  the  sheets  for  the  day  previous,  does  not 
show  on  the  sheets  for  the  current  day,  it  should 
be  transferred  to  them  so  they  will  furnish  a 
complete  statement  of  work  which  has  been 
scheduled  ahead  for  men. 

The  sheet  for  the  current  day,  now  revised,  is 
to  be  used  each  day  by  those  scheduling  the 
work,  as  a  guide  in  planning  for  the  following 
day.  In  this  way,  all  old  orders  will  be  brought 
forward  each  day  and  be  kept  before  the  atten- 
tion of  the  shop  foreman. 

B.      DISPATCHING : 

1 .  Writing  up  tJie  Service  Cards : 

As  orders  are  received  and  noted,  for  steel  cast- 
ings or  for  iron  castings  to  be  made  in  the  steel 
foundry,  they  are  to  be  turned  over  to  the  dis- 
patcher, who  is  to  make  out  a  service  card  in 
duplicate  for  each  item  as  shown,  assigning  to 
each  a  "flask  number,"  which  is  to  be  entered 
on  both  the  order  and  the  service  card. 

2.  The  Dispatch  Board : 

The  dispatch  board  is  classified  as  follows: 
a.     According  to  work  which  is  unavailable, 
filed  by  classes  of  orders  by  order  num- 
bers. 

6.  According  to  work  which  is  available,  but 
not  assigned  to  any  particular  man,  men, 
or  floor,  and  filed  by  classes  of  orders  by 
order  numbers. 

C.  According  to  floor  or  men  for  work  as- 
signed, each  space  being  divided  into  three 
sections,  as  follows: 


PLANNING  AND  DISPATCHING  CONTROL    315 

1.  First,  or  top,  section  to  hold  jobs 
that  are  being  worked  on. 

2.  Second,  or  middle,  section  to  hold 
jobs  that  workmen  are  to  start  on 
upon    completion    of    work,    or    on 
starting  in  the  morning. 

3.  Third,  or  bottom,  section  to  hold  an 
available  supply  of  work  for  a  par- 
ticular workman. 

3.  Filing  Service  Cards: 

As  soon  as  service  cards  are  written  up,  they  are 
to  be  filed  according  to  the  proper  class  in  the 
"unavailable'"  section,  by  order  numbers.  As 
the  dispatcher  is  notified  by  the  Pattern  House 
fhat  jobs  are  available  (by  means  of  the  pattern 
cards  sent  to  despatch  office),  the  service  cards 
corresponding  to  the  pattern  cards  received  are 
to  be  transferred  to  the  "available"  file. 

4.  Procedure  after  Jobs  have  been  Planned  Ahead: 

After  the  planning  sheets  have  been  written  up, 
the  service  cards  for  the  new  work  coming  in, 
corresponding  to  the  items  listed,  are  to  be  re- 
moved from  the  "available"  file,  and  the  sched- 
ule number  and  the  standard  time  are  to  be 
entered,  after  which  they  are  to  be  filed  on  the 
dispatch  board  against  the  men  or  floors  speci- 
fied. 

Service  cards  for  uncompleted  orders,  which  will 
be  found  on  the  dispatch  board,  on  account  of 
the  previous  removal  from  the  "available"  file, 
will  be  rearranged  according  to  the  planning 
sheet.  After  this  has  been  done,  the  dispatch 
board  should  be  an  exact  duplicate  of  the  plan- 
ning sheet. 

5.  Issuing  and  Closing  Service  Cards: 

As  workmen  report  to  the  dispatch  office  in  the 
morning,  the  service  cards  corresponding  to  the 
work  they  are  to  start  on  are  to  be  removed  from 
the  second,  or  middle,  section  of  the  dispatch 
board,  the  starting  time  entered,  the  duplicates 


316          EXECUTIVE  STATISTICAL  CONTROL 

given  to  the  men,  and  the  originals  filed  in  the 
top  section  of  the  dispatch  board  for  the  proper 
men  or  floors.  As  this  is  being  done,  the  top 
service  card  in  the  third  section  is  to  be  trans- 
ferred to  the  second,  or  middle,  section  as  ' '  the 
job  ahead." 

As  workmen  report,  upon  completion  of  work, 
the  original  copies  of  the  service  cards  are  to  be 
removed  (top  section),  also  the  service  card  in 
duplicate  covering  the  job  ahead  (middle  sec- 
tion). The  original,  covering  the  completed 
work,  is  then  to  have  entered  upon  it  the  finish- 
ing time,  the  number  of  pieces  moulded,  and  the 
date,  after  which  the  service  cards  for  the  job 
ahead  are  to  follow  the  procedure  outlined  at 
the  beginning  of  the  paragraph  immediately  pre- 
ceding. 

Under  this  system,  or  under  systems  that  are  modi- 
fications of  it,  the  presence  of  the  man,  the  machine, 
the  material,  and  the  accessory  equipment,  is  assured 
for  the  proper  time.  Standardization  must,  of  course, 
have  taken  place  before  the  time  required  for  the  work 
can  be  accurately  predicted.  The  more  complete  the 
standardization  of  machine  and  material  delivery, 
and  the  greater  the  assurance  of  the  worker  that  he 
can  perform  the  task  in  standard  time,  with  suitable 
reward  for  such  performance,  the  more  accurately  the 
work  can  be  planned  and  the  less  necessary  is  any 
readjustment  of  schedule. 

Planning:  Continuous-Production  System.— The 
last  word  in  scientific  planning  under  the  continuous- 
production  system,  is  exemplified  in  the  "control 
boards,"  for  scheduling  work,  the  Franklin  automo- 


NOTE. — Full  description  of  service  cards,  Dispatch  Boards,  etc. 
will  be  found  in  Chapter  IV. 


PLANNING  AND  DISPATCHING   CONTROL    317 

bile  plant  in  Syracuse.*  Mr.  Babcock  and  his  associ- 
ates have  worked  out  a  "medium  to  guide  the  carry- 
ing on  of  all  necessary  acts  in  the  preparation  of  a 
complex  product,  so  there  will  be  a  minimum  of  con- 
fusion and  a  maximum  conservation  of  capital  in 
material  in  stores,  and  of  material  and  labor  costs  in 
work  in  process."  The  plan  is  unique. 

In  studying  these  boards  I  found  that  automobiles 
that  were  to  be  turned  out  in  December  were  on  the 
boards  in  May — every  part  planned,  and  the  date  on 
which  the  work  on  each  part  was  to  be  done  already 
decided.  Service  cards  for  work  weeks  ahead  had 
been  prepared,  and  were  filed  ready  for  the  oper- 
atives. I  asked  whether  war  shortages  in  materials 
were  not  upsetting  such  elaborate  and  detailed  plans. 
The  answer  was,  "To  some  extent,  yes — but  we  know 
the  scarcities  months  ahead,  instead  of  a  few  days 
ahead,  and  plan  accordingly." 

Planning1:  Job-Production  System. — The  Tabor 
Manufacturing  Company,  in  Philadelphia,  the 
"cradle"  of  Scientific  Management,  is  the  supreme 
example  of  planning  under  the  job-production  sys- 
tem. Just  how  many  of  each  sort  of  machine  made 
must  be  manufactured,  depends  upon  the  demands  of 
the  trade.  Standardization  and  planning  have,  how- 
ever, reached  such  perfection  in  the  ten  or  more  years 
the  shop  has  been  operated  under  scientific  manage- 
ment, that  the  Company  has  established  what  is 
called  the  "Library."  When  a  machine  is  called  for, 
an  order  to  their  "Librarian"  brings  forth  from  his 


*  See  also  "Planning  and  Time  Studies,"  G.  S.  Armstrong;  Vol. 
3,  Factory  Management  Course. 


318          EXECUTIVE  STATISTICAL  CONTROL 

cases  complete  plans  and  instructions  to  the  last  de- 
tail. Such  perfection  cannot  be  attained  in  a  day, 
but  once  it  has  been  reached,  think  of  the  delay,  the 
discussion,  and  the  unnecessary  expense  that  the 
owners  of  such  a  company  are  spared! 

Wastes  Due  to  Imperfect  Planning1. — Two  examples 
of  labor  and  equipment  wastes  due  to  imperfect  plan- 
ning, are  shown  by  the  accompanying  photographs, 
Figures  69  and  70.  The  first  shows  nine  teamsters 
and  twelve  mules  who  "planned"  their  own  work 
in  such  a  way  that  they  were  engaged  in  hauling  the 
product  from  a  plant  to  a  storage  yard  across  the 
tracks  on  which  the  freight  train  switched  at  a  cer- 
tain time  every  afternoon.  The  men  were  not  on 
bonus,  and  so  planned  very  intelligently  for  them- 
selves, as  it  was  easier  to  stand  on  the  wagon  than 
to  load  and  unload,  and  their  pay  went  on  just  the 
same.  As  far  as  profitable  results  to  the  Company 
went,  the  mules  alone  might  better  have  done  the 
planning! 

The  second  picture,  Figure  70,  shows  some  more 
"planning."  These  men  were  on  piece-work.  It  was 
to  their  advantage  to  work  as  long  and  as  continu- 
ously as  possible.  Unfortunately  for  them — and  for 
the  Company,  who  had  customers  clamoring  for  the 
plant's  output — the  crew's  next  job  had  not  been 
planned.  As  a  result,  the  seven  men  when  photo- 
graphed— were  discussing  whether  they  should  go 
home,  or  hunt  up  the  foreman  and  see  whether  he 
had  something  else  for  them  to  do. 

Bringing  the  Facts  Before  the  Executive. — I  be- 
lieve that  I  have  given  a  sufficient  account  of  casual 


PLANNING  AND  DISPATCHING  CONTROL      321 

planning  to  show  what  it  costs  a  company,  and  a  full 
enough  outline  of  the  methods  of  scientific  planning 
to  illustrate  its  value  and  the  necessity  for  the  suc- 
cessful executive  to  keep  informed  continually  con- 
cerning the  degree  of  perfection  attained.  The  exact 
method  of  bringing  the  facts  before  the  executive 
must,  of  course,  vary  with  the  nature  of  the  busi- 
ness, the  control  of  which  is  being  studied.  The  per- 
fection with  which  the  planning  is  being  done  may 
perhaps  be  judged  by  the  executive  as  well  from  its 
effect  upon  certain  phases  of  the  business  as  in  any 
other  way.  For  instance,  there  should  be  little  doubt 
in  the  mind  of  the  exectuive  that  idle  machines  cost 
the  company  money. 

The  following  series  of  three  charts,  Figures  71, 
72,  and  73,  illustrates  what  is  meant.  To  take  a 
simple  case,  let  us  assume  that  the  first  cost  of  a  cer- 
tain machine  is  $10,000.  The  interest  on  such  a  ma- 
chine amounts  to  $40  per  month  at  5  per  cent.  We 
have  also  the  monthly  cost  of  the  floor  space  occu- 
pied in  a  building  which  has  'been  rented,  or  which 
has  been  erected  on  borrowed  capital,  or  whose  erec- 
tion has  tied  up  capital  that  might  have  earned  5  per 
cent  if  it  had  been  invested  in  bonds  or  mortgages. 
Power,  heat,  and  light  equipment  has  necessarily  been 
purchased,  which  is  not  used  if  the  machine  is  idle, 
but  interest  on  it  must  be  paid,  nevertheless,  whether 
the  machine  is  run  or  not. 

The  machine,  the  building,  and  the  power  plant 
must  be  insured.  Depreciation  must  Tbe  written  off. 
A  lot  of  foremen,  superintendents,  managers,  clerks, 
and  others  must  be  paid.  If  the  machine  had  been 


322 


EXECUTIVE  STATISTICAL  CONTROL 


JAN. 
FEB. 
MAR. 
APR. 
MAY 
JUNE 
JULY 
AUG. 
SEPT 
OCT. 
NOV. 
DEC. 

DOLUkRS 

—        rv>       ex         ^        SJJ        ^ 
ooo        o       o        o 
§o      o        o       °       ° 
o      o        o       o       o 

\ 

r 

\ 

/ 

\ 

/ 

f 

/ 

y 

/ 

/ 

\ 

s 

/ 

/ 

PIG.   71.      IDLE  MACHINE  COST   CHART 


PLANNING  AND  DISPATCHING  CONTROL    323 


JAN.* 
FEB. 
MAR. 
APR. 
MAY 
JUNE 
JULY 
AUG. 
SEPT. 
OCT. 
NOV. 
DEC. 

PER  CENT 

—             f\J              O*              •£•              (n             C* 

>       o       o       o       o       o       o 

\ 

\ 

7 

/ 

/ 

/ 

/ 

y 

_L 

FIG.   72.      PERCENTAGE    OF    MACHINES    IDLE — 
DEPARTMENT   D 


324         EXECUTIVE  STATISTICAL  CONTROL 

run,  the  total  of  their  salaries  would  have  been  di- 
vided by  the  increased  output.  It  is  only  fair,  there- 
fore, that  the  machine  should  bear  its  share  of  such 
expense  when  idle  as  well  as  when  busy.  Further- 
more, the  machine  would  not  have  been  purchased  if 
the  company  had  not  expected  to  make  a  certain 
profit  on  the  goods  it  was  expected  to  turn  out.  Sup- 
pose we  estimate  the  cost  of  these  items  as  follows: 

Interest— 30  days  @  5%  on  $10,000 $  40 

Rent  of  Floor  Space  in  Building,  etc 25 

Power,  Heat,  &  Light,  paid  for,  but  not  produc- 
tively utilized    10 

Insurance,  Depreciation,  etc 5 

Supervision — paid  for,  but  not  used 25 

Profit  on  goods  which  machine  was  purchased  to 
manufacture    .  500 


Cost  per  month  to  maintain  idle  machine $605 

Figure  71  illustrates  what  a  group  of  such  idle  ma- 
chines is  costing  the  company  each  month,  and  shows 
this  in  such  a  way  that  the  executive  cannot  fail  to 
realize  the  seriousness  of  the  situation.  The  expendi- 
ture of  the  five  or  six  thousand  dollars  shown  on  the 
"Idle-Machine  Cost"  chart  might  just  as  well  be 
labeled  " Money  Thrown  Away."  At  any  rate,  the 
continual  perusal  of  such  a  chart  cannot  but  spur  the 
management  and  the  organization  to  some  sort  of  ex- 
ertion in  the  right  direction. 

How  effective  this  exertion  will  prove,  will  depend 
upon  the  thoroughness  with  which  the  causes  of  idle- 
ness are  analyzed.  The  second  chart,  Figure  72, 
shows  the  proportion  of  idle  machines  in  Department 
D,  which  we  will  assume  the  executive  has  found  to 


PLANNING  AND  DISPATCHING  CONTROL     325 

be  the  chief  offender,  from  his  perusal  of  the  chart 
apportioning  the  expense  shown  in  the  first  chart. 

Department  D's  performances  having  been  noted, 
the  executive  turns  to  the  third  chart,  Figure  73, 
which  analyzes  the  causes  of  these  fluctuations.  It 
appears  that  in  the  early  months  of  the  year  the  shut- 
downs were  caused  about  equally  by  material  (short- 
ages, and  so  on),  equipment  (breakdowns,  and  lack 
of  dies,  jigs,  fixtures,  tools,  and  the  like),  and  orders 
(not  received  from  the  sales  department). 

Further  study  of  " equipment  delays,"  carried  on 
by  means  of  " machine  delay"  charts,  such  as  were 
described  in  a  previous  chapter,  and  study  of  "ma- 
terial delays,"  gradually  reduces  the  percentage  of 
such  delays  from  July  on,  >as  shown  by  the  chart. 
The  percentage  of  delays  due  to  lack  of  orders  neces- 
sarily increases,  and  puts  the  problem  squarely  up  to 
the  sales  department  and  those  responsible  for  the 
policy  of  the  company.  Quite  naturally  the  second 
chart  reflects  in  August  a  reduction  of  the  percent- 
age of  machines  idle,  and  the  cost  of  idle  machines 
(see  Figure  71))  also  decreases.  The  reduction  of 
material  and  equipment  delays  means,  principally, 
that  planning  has  been  done  more  effectively  than  be- 
fore. 

Business  Value  of  Dependableness. — Another  phase 
of  the  business  which  reflects  the  effectiveness  of  the 
planning  department,  is  shown  by  the  next  series  of 
charts,  Figures  74  and  75.  Several  years  ago,  a  plant 
manufacturing  bolts,  nuts,  and  a  variety  of  steel  parts, 
called  in  specialists  from  a  firm  of  efficiency  engi- 
neers to  instal  methods  of  control.  After  a  number 


326 


EXECUTIVE  STATISTICAL  CONTROL 


i 

:>         C 

5      c 

PE 
*        \ 

R  CEf 
^        4 

D           C 

^T 

>         J 

n  C. 

}  C 

P» 
D           C 

4 

D 

II 

trp-o 

i 

A 

MAP 

i 

i 

\ 
\ 

? 
* 

! 

A  on 

\ 

u 

1 

^j 

# 

v/ 

i\ 

IUNF 

i/ 

i/ 

y 

A 

/ 

\ 
\ 
V 

/ 

// 

^x 

^ 

^ 

»Ss 

// 

\ 

X 

oLr  1. 
OCT 

/ 

/ 

( 

\ 

NDV 

/ 

\ 
\ 

N 

1 
1 

DEC 

\ 
\ 
i 

/ 

/ 

KG.   73.      CHART   ANALYZING    CAUSES   OF   DELAY — 
DEPARTMENT   D 


PLANNING  AND  DISPATCHING  CONTROL    327 


< 

JAN. 
FEB. 
MAR. 
APR. 
MAY 
JUNE 
JULY 
AUG. 
SEPT. 
OCT. 
NOV. 
DEC. 

PER  CENT 
—         ro         w         .**         in         <SN 

5          O           O           O           O           0           o 

/ 

/ 

1 

1 

/ 

/ 

/ 

1 

/ 

/ 

1 

FIG.  74.      PERCENTAGE  OF  PRODUCT  DELAYED  BEYOND 
DATE  PROMISED 


328         EXECUTIVE  STATISTICAL  CONTROL 

of  months,  "preliminary  planning"  was  started.  The 
orders  on  hand  were  scheduled  to  departments  and  to 
machines  in  a  rough  sort  of  way,  in  order  to  get  the 
work  started.  It  was  at  once  discovered  that  the 
sales  department  had  been  planning  deliveries  that 
were  absolutely  impossible.  Smith,  the  sales  man- 
ager, when  taken  to  task  by  one  of  the  engineers, 
said,  "You  must  understand,  my  dear  young  man, 
that  competition  is  so  keen  in  this  line  that  the  only 
way  we  can  get  business  is  to  promise  quicker  de- 
liveries than  our  rivals. " 

The  engineer  made  no  reply,  but  later  in  the  day 
he  asked  the  general  manager  whether  the  company 
had  deliberately  adopted  the  policy  of  attempting  to 
hold  its  customers  by  telling  them  lies  and  disap- 
pointing them  on  deliveries.  The  inevitable  explo- 
sion occurred,  but  when  the  smoke  had  cleared  away 
the  sales  manager  was  instructed  to  promise  no  de- 
liveries unless  the  date  were  set  by  the  production 
engineer,  who  had  charge  of  the  planning  depart- 
ment. 

Six  months  later,  the  purchasing  agent  of  one  of 
the  largest  agricultural-implement  companies  in  the 
world  called  the  production  engineer  on  the  phone. 
"Smith  tells  me  your  company  has  got  a  new  sys- 
tem. He's  the  biggest  liar  in  the  country,  and  the 
last  time  I  gave  him  an  order  I  swore  I'd  never  give 
him  another  one;  but  I'm  up  against  it  for  bolts,  and 
I'll  give  you  a  trial  if  you  say  you  can  get  them  out 
in  three  weeks." 

The  production  engineer  refused  three-weeks'  de- 
livery but  promised  thirty  days.  The  bolts  were 


PLANNING  AND  DISPATCHING  CONTROL    329 


70 

, 

^ 

y 

SO 

/ 

x$> 

/ 



^^ 

40 

X 

/^ 

x^ 

^x 

/ 

7 

\ 

V 

X 

/ 

^x 

^^ 

"^ 

\ 

1 

0$ 

i" 

\ 

"^•^ 

o 

\ 

/ 

[ 

^ 

•  . 

2 

:       a 

u. 

I 

>      ^ 

=           [ 

1-           1 

-      ; 

i           (. 

i 

>      u 

: 

-_       < 

i      s 

) 

> 

T          • 

(           t 

"           < 

^      c 

3         2 

i     c 

1 

FIG.  75.      DELAYED  DELIVERY  ANALYSIS  CHART  SHOWING  CAUSES 
OP  DELAYS.     SEE  CHAPTER  XV 

shipped  on  the  twenty-third  day.  That  agricultural- 
implement  company  has  been  one  of  the  firm's  best 
customers  ever  since! 

Such  an  episode  as  that  brings  home  the  old  adage 
that  honesty  is  the  best  policy — even  when  selling 
goods.  The  executive  who  can  clinch  his  customers 
to  him  by  means  of  a  reputation  for  so  conducting 
his  business  that  his  factory  always  does  better  than 
his  sales  department  promises  it  will  do,  need  not 
worry  about  the  certainty  of  his  market.  If  he  wants 
to  know  who  is  responsible  for  customers  lost  by  lies, 
a  chart  designed  along  the  lines  suggested  by  the  ac- 
companying illustration,  Figure  74,  will  tell  him. 
The  unfortunate  feature  about  this  chart  is  its  "lack 
of  permanency" — as  the  man  said  about  the  horse  he 


330          EXECUTIVE  STATISTICAL  CONTROL 

had  educated  to  live  on  sawdust.  About  the  time  the 
chart  is  Marking  nicely,  it  eliminates  itself. 

The  first  chart,  Figure  74,  shows  the  percentage  of 
the  product  delayed  beyond  the  date  of  shipment 
promised — in  other  words,  the  percentage  of  cus- 
tomers lied  to,  consciously  or  unconsciously.  The 
second  chart,  Figure  75,  shows  who  told  the  lies.  It 
will  be  noted  that  the  sales  department  had  the  riot 
act  read  to  them  early  in  February,  so  that  they  be- 
came more  conservative  in  their  statements.  The 
drop  in  the  percentage  of  customers  lied  to  is  im- 
mediately noticeable  on  the  first  chart.  In  March, 
the  lies  attributable  to  the  sales  department  in- 
creased, in  spite  of  the  fact  that  they  were  making 
an  honest  effort  to  tell  the  truth.  Evidently  the  in- 
formation coming  from  the  planning  department, 
which  was  just  getting  started,  wasn't  reliable. 

By  May,  both  the  sales  and  the  planning  depart- 
ment were  "hanging  it  on"  the  material-order  de- 
partment. Meantime  the  proportion  of  deceived  cus- 
tomers had  dropped  from  45  to  25  per  cent.  Com- 
paratively, the  company  was  becoming  quite  truth- 
ful. By  November,  the  sales  and  the  production  de- 
partment had  definitely  " passed  the  buck"  to  the 
purchasing  department.  Their  skirts  were  clear.  In- 
cidentally the  purchasing  department  had  increased 
its  batting  average  and  the  customers — all  except  5 
per  cent  of  them — believed  the  sales  manager  when 
he  swore  he  spoke  the  truth.  By  December,  the  de- 
ceived ones  were  almost  eliminated,  and  so  is  the 
chart,  whose  usefulness  departs  as  soon  as  the  sales 
manager  realizes  that  the  factory  means  what  it  says 


PLANNING  AND  DISPATCHING   CONTROL    331 

when  it  promises  him  a  delivery,  and  that  his  re- 
ward, once  the  customer  realizes  that  the  company 
keeps  its  word,  to  the  letter,  is  praise  and  friendship 
instead  of  abuse  and  suspicion. 

Scientific  Planning  Pays. — Scientific  Planning  is 
worth  while.  Like  everything  else  in  our  large  cor- 
porations, it  needs  the  intelligent  and  continuous 
push  of  the  wise  executive  behind  it.  Statistics  and 
charts  that  keep  the  chief  executive  constantly  in- 
formed as  to  the  efficiency  with  which  the  planning 
is  carried  out,  and  as  to  its  effect  upon  the  net  profits, 
should  not  be  considered  a  burden  upon  the  business. 


CHAPTER  XVIII 
PRODUCTION  AND  SALES   CONTROL 

Executive  Must  Promote  Harmony. — Unless  the  ex- 
ecutive understands  certain  fundamental  differences 
in  the  temperament  and  training  of  the  men  who 
compose  a  company's  sales  and  operating  depart- 
ments, no  amount  of  system  will  promote  that  har- 
mony of  action  which  is  necessary  to  insure  a 
smoothly-running  and  successful  organization. 

No  matter  how  agreeable  the  general  sales  man- 
ager and  the  general  superintendent  are  to  each  other 
socially,  no  matter  how  high  the  quality  of  the  per- 
sonnel of  each  department,  no  matter  how  capable  and 
carefully  organized  the  commanding  executive  force, 
there  are  always  present  latent  suspicion  and  antag- 
onism, which,  unless  they  are  understood  and  con- 
trolled, continually  take  their  pound  of  flesh  from  the 
net  profits.  The  fundamental  cause  of  this  antagonism 
lies  in  the  temperamental  difference  between  the  type 
which  succeeds  as  salesman  and  the  type  which  suc- 
ceeds as  superintendent. 

Salesman  and  Superintendent  Contrasted. — The 
good  salesman  is  an  optimist.  In  order  to  make 
others  believe  in  his  goods,  he  must  believe  in  them, 
himself,  regardless  of  their  real  quality  and  worth- 
even  when  their  quality  wouldn't  deceive  a  blind  man 
at  midnight.  He  must  be  an  enthusiast,  no  matter 


PRODUCTION  AND  SALES  CONTROL    333 

how  black  the  business  outlook,  or  his  sales  volume 
will  be  negligible.  And  he  must  have  a  personality 
force  almost  equivalent  to  hypnotism.  Therefore,  as 
a  result  of  the  salesman's  continued  and  necessary 
effort  to  deceive  himself — or  at  least  to  select  the 
most  favorable  aspects  of  any  situation,  and  then 
to  persuade  himself  that  these  are  all  true — it  be- 
comes very  easy  for  him  to  believe  what  he  wants 
to,  or  what  the  exigencies  of  the  situation  demand 
that  he  believe.  This  continual  distortion  of  his 
point  of  view  cannot  but  leave  a  permanent  impres- 
sion upon  his  mind,  and  in  time  it  becomes  difficult 
for  him  to  form  complete  judgments  and  to  reach 
entirely  unbiased  decisions.  There  is  a  tendency,  also 
for  the  salesman  to  exaggerate.  As  one  man  ex- 
pressed it,  "When  two  black  cats  are  howling  on 
the  back  fence,  the  successful  salesman  must  be  able 
to  think  the  back  yard  is  full  of  black  cats."  The 
Hamlet  type — the  man  who  sees  all  of  both  sides  of 
the  question  and  then  loses  himself  speculating  about 
both,  who  hesitates  rather  than  acts,  is  no  salesman. 
The  man  of  judicial  temperament,  who  weighs  both 
sides  with  exceeding  accuracy,  instead  of  immedi- 
ately coming  out  strongly  for  his  own  side,  believing 
"There  may  be  something  in  the  other  fellow's  side, 
but  that's  his  business,  not  mine" — such  a  man  is 
not  likely  to  prosper  as  a  promoter.  Belief  in  him- 
self, belief  in  the  goods  he  is  selling,  the  firm  con- 
viction that  he  is  doing  all  mankind  a  service  in  al- 
lowing them  to  purchase,  and  the  ability  to  tell  peo- 
ple about  his  proposition  in  interesting  fashion,  these 
are  the  requisites  of  a  good  salesman. 


334          EXECUTIVE  STATISTICAL  CONTROL 

The  successful  superintendent  or  factory  manager 
is  almost  the  exact  opposite  of  the  successful  sales- 
man. He  must  be  able  to  analyze  conditions  in  such 
a  fashion  that  he  will  secure  all  the  facts.  He  must 
be  able  to  spread  these  facts  out  upon  the  table  be- 
fore him,  as  it  were,  determine  their  exact  relative 
importance,  discard  all  irrelevant  matter,  and  then, 
overlooking  nothing,  make  his  decision.  He  must 
reach  his  conclusion  after  an  accurate  and  exhaustive 
examination.  The  salesman,  on  the  other  hand,  is 
furnished  his  conclusion  at  the  beginning.  He  is  told, 
"The  goods  are  O.K.  Go  out  and  sell  'em."  There- 
upon he  must  build  up  and  arrange  his  facts  to  prove 
this  conclusion. 

The  superintendent  deals  with  things  tangible: 
materials,  machines,  the  productivity  of  the  man- 
hour.  To  him  the  personal  equation  is  only  one  fac- 
tor in  a  dozen.  To  the  salesman  the  personal  equa- 
tion is  everything.  The  factory  manager  can  plan 
his  work  a  long  way  ahead.  The  salesman  knows  not 
at  what  time  a  poorly  digested  dinner  may  upset  his 
best  laid  plan  of  campaign.  The  factory  manager 
regards  himself  as  prudent  and  far-sighted,  and 
the  salesman  looks  as  a  creature  of  the  moment 
— a  person  of  whims,  unstable  as  the  summer  breeze. 
Why  should  the  salesman  plan  elaborately?  As  one 
man  remarked,  "I  can  work  out  my  opening  sentence 
before  I  go  to  call  on  a  man — but  what  my  second 
sentence  will  be  is  beyond  the  forecast  of  anybody 
I  know  of  in  the  prophet  business  for  the  last  1900 
years."  Detailed  plans  would  only  be  an  encum- 
brance. He  can  lay  out  beforehand  the  general  line  of 


PRODUCTION  AND  SALES  CONTROL    335 

thought  he  wishes  to  develop;  but  just  what  he  shall  do 
and  say,  he  must  determine  as  the  situation  develops. 

The  judicial  temperament  is  an  asset  to  the  fac- 
tory manager.  He  must  be  able  to  weigh  both  sides 
of  any  question,  for  he  must  treat  his  men  fairly. 
Very  often,  he  must  even  protect  them  against  doing 
themselves  injustice.  He  must  be  enough  of  a  pessi- 
mist to  foresee  possible  dangers  and  to  guard  against 
them.  Like  the  salesman,  he  must  have  a  personality 
force — but  since  most  of  his  viewpoints  differ  radi- 
cally from  those  of  the  salesman,  this  force  makes  for 
antagonism  rather  than  for  harmony  between  these 
two  types  of  men. 

The  man  at  the  head  of  an  operating  organization 
must  always  state  his  case  exactly,  concisely,  and 
briefly,  in  order  that  there  may  be  no  danger  of  a 
misunderstanding.  The  superintendent,  then,  is  likely 
to  regard  the  salesman — who  makes  statements  based 
upon  a  single  premise,  and  who  exaggerates  facts — 
as  something  closely  akin  to  a  liar.  He  is  likely  to 
consider  the  salesman's  volubility  with  much  the 
same  feeling  of  silent  contempt  with  which  a  sage 
might  regard  a  chattering  popinjay.  If  he  envies  his 
rival's  facility  of  expression,  his  silence  and  contempt 
are  only  likely  to  be  the  more  marked.  The  super- 
intendent has  made  his-  way  up  with  flannel  shirt 
and  dinner  bucket,  and  naturally  takes  a  certain 
pride  in  roughness  and  masculinity.  He  is  therefore 
likely  to  regard  with  a  mixture  of  awe  and  contempt 
the  man  in  the  silk  shirt — whom  he  perhaps  regards 
somewhat  as  a  pampered  patron  of  the  lobster  pal- 
ace and  of  the  peroxide  manicurist. 


336         EXECUTIVE  STATISTICAL  CONTROL 

I  may  have  drawn  the  contrast  a  trifle  strong,  "but 
it  is  nevertheless  true  that  both  the  early  and  the 
later  environment  of  the  two  types  differs  widely  in 
most  cases.  The  characteristics  which  make  for  suc- 
cess in  the  production  department,  differ  widely  from 
those  that  bring  a  man  to  the  top  in  the  sales  de- 
partment. Consequently  there  are  temperamental  dif- 
ferences in  the  two  types  of  men  which  are  continu- 
ally cropping  out.  This  is  simply  a  fact  to  be  faced, 
and  the  best  general  managers  provide  accordingly. 

Friction  between  Sales  and  Operating  Departments. 
— Friction  between  the  sales  and  operating  depart- 
ments is  almost  incalculably  harmful.  By  way  of 
illustration,  let  us  take  what  is  perhaps  the  com- 
monest inefficiency;  namely,  the  interruption  of  pro- 
duction by  rush  orders.  In  the  factory,  the  work  for 
the  period — a  month,  or  a  week,  or  whatever  it  may 
be — is  planned  in  advance,  and  the  material  is  then 
ordered.  A  consistent  adherence  to  this  plan  is  essen- 
tial to  economical  operation.  In  the  middle  of  the 
period,  the  sales  department  sends  in  a  rush  order. 
Some  customer  has  been  caught  short,  or  a  new  cus- 
tomer can  be  obtained  by  the  promise  of  early  deliv- 
eries. The  factory's  plan  is  completely  upset,  depart- 
ments are  thrown  out  of  balance,  overtime  lowers  the 
efficiency  of  the  operating  force.  The  superintendent 
is  furious,  knowing,  as  he  does,  that  he  will  be  held 
accountable  for  the  cost  per  unit  which  must  inevit- 
ably increase. 

Let  us  take  another  instance.  The  sales  manager 
promises  a  certain  delivery — perhaps  without  con- 
ferring with  the  superintendent.  Or  it  may  be  that 


PRODUCTION  AND  SALES  CONTROL    337 

the  superintendent,  somewhat  in  awe  of  his  more 
brilliant  associate,  is  carried  off  his  feet  by  argu- 
ments, and  promises  an  earlier  delivery  than  his  best 
judgment  approves.  The  factory  falls  down  on  de- 
livery. The  customer  is  enraged,  and  the  sales  man- 
ager is  frantic. 

In  either  case,  mutual  condemnation  and  ill  feel- 
ing are  the  result.  Both  departments  fall  in  effi- 
ciency. Factory  costs  increase,  the  sales  depart- 
ment's hold  upon  its  customers  is  weakened,  and  the 
net  profits  suffer. 

Three  Types  of  Business. — The  remedies  for  such, 
conditions  differ  somewhat  with  the  nature  of  the 
business.  In  general,  business  may  be  roughly  classi- 
fied under  three  divisions: 

1.  Monopolistic — in  which  the  corporation  occu- 
pies a  position  that  is  almost  unassailable  as  far  as 
competition  is  concerned — as  when  it  possesses  a  pat- 
ent, a  corner  on  a  raw  material,  or  a  franchise.    The 
attitude   of  the  sales   department  in  this   instance 
might  be  described  as  aristocratic. 

2.  Strategic — in  which  the  corporation  has  a  less 
strong,  but  still  a  definite,  advantage  over  its  com- 
petitors— such  as  being  the  first  in  a  given  field,  well- 
established  enough,  or  large  enough,  to  dominate  the 
situation.     Or,  a  company  may  be  better  organized 
than  its  competitors  and,  through  lower  costs  or  bet- 
ter quality,  have  a  surer  hold  upon  the  public.    The 
attitude  of  the  sales  department  in  this  case  may  be 
characterized  as  self-respecting. 

3.  Competitive.    The  distinction  between  this  class 
and  class  2  is  somewhat  more  difficult  to  describe. 


338          EXECUTIVE  STATISTICAL  CONTROL 

The  competitive  class  includes  concerns  which  have 
no  distinct  advantage  over  their  competitors,  but 
which  depend  for  their  sales  upon  public  favor,  politi- 
cal pull,  the  cutting  of  prices,  the  creation  of  a  clien- 
tele, and  so  on.  Department  stores,  with  their  absurd 
service  features,  fall  into  this  class,  county,  state 
and  city  governments,  and  manufacturers  selling  to 
public  corporations,  besides  all  sorts  of  minor  con- 
cerns dwindling  off  down  to  the  corner  grocery  or 
drug  store,  which  must  hold  business  against  its 
rival  across  the  way.  The  attitude  of  the  selling 
force  in  such  a  business  may  be  described  as  sub- 
servient. 

Monopolistic  Type. — In  the  case  of  the  first  type  of 
business,  the  sales  manager  is  a  distributor  rather 
than  a  salesman.  The  demand  for  the  goods  is 
greater  than  the  supply,  and  the  sales  manager  de- 
cides who  shall  be  favored.  Salesmanship  is  a  thing 
unknown  and  unnecessary.  In  one  such  concern 
which  I  once  knew  well,  the  general  sales  manager 
was  popularly  known  throughout  the  field  as  the  gen- 
eral excuse  agent  of  the  company.  He  didn't  have 
to  sell  goods;  his  job  was  to  calm  down  clamoring 
customers,  to  explain  to  them  why  their  orders  hadn't 
been  filled,  and  to  feed  them  any  sort  of  soothing 
syrup  that  would  stifle  their  cries.  At  one  time  the 
pressure  had  become  so  great  that  the  sales  manager, 
driven  nearly  frantic,  was  promising  any  delivery  de- 
manded, no  matter  how  ridiculous.  Customers  were 
of  course  disappointed  when  the  goods  arrived  way 
behind  schedule,  since  in  many  cases  it  meant  heavy 
loss  to  them.  The  firm  got  the  reputation  of  not  liv- 


PRODUCTION  AND  SALES  CONTROL    339 

ing  up  to  its  promises.  As  a  result,  the  next  time  a 
customer  placed  an  order  with  the  firm,  he  en- 
deavored to  protect  himself  by  demandinig  delivery 
in  even  shorter  time — hoping  that  a  promise  for 
thirty-day  delivery  would  bring  him  the  sixty-day 
shipment  he  needed.  When  this  plan  became  uni- 
versal among  customers,  and  their  follow-up  systems 
were  in  full  operation,  beginning  with  the  soft  pedal 
at  thirty  days  and  ending  in  a  perfect  bellow  of  rage 
and  abuse  about  the  sixtieth  day,  the  life  of  the  gen- 
eral excuse  agent  was  one  of  anguish  and  misery. 

The  only  vent  for  his  wrath  was  the  factory, 
" which  hadn't  turned  out  the  goods,  which  was  re- 
sponsible for  his  breaking  his  promise,  which  was 
giving  the  company  a  bad  reputation, "  and  so  on. 
Customers  began  to  phone  and  write  the  factory 
direct,  "We  don't  want  to  talk  to  the  sales  manager 
— wouldn't  believe  him  on  a  stack  of  Bibles  as  high 
as  Pike's  Peak;  what  we  want  to  know  is,  when  we 
are  going  to  get  the  goods!" 

The  factory  manager  finally  got  tired  of  this  sort 
of  thing,  and  called  a  conference  of  the  executive 
heads  of  the  company.  At  this  conference  it  was  de- 
cided, first,  that  no  rush  orders  were  to  be  accepted 
without  consultation  with  the  factory;  secondly,  that 
the  decision  as  to  date  of  delivery  should  re^st  with 
the  factory;  and  thirdly,  that  ten  per  cent  should  in 
every  case  be  added  by  the  sales  department  to  the 
delivery  time  set  by  the  factory — and  that  no  amount 
of  argument,  exhortation,  or  threatening  on  the  part 
of  the  customer  should  be  allowed  to  force  the  sales 
department  to  concede  even  one  day  on  such  delivery. 


340          EXECUTIVE  STATISTICAL  CONTROL 

This  may  seem  rather  drastic  action,  but  the  re- 
sults justified  the  means.  Within  three  months  the 
harried  look  had  left  the  sales  manager's  face.  He 
had  to  have  his  fight  only  once — at  the  beginning, 
when  the  delivery  date  was  settled.  When  the  goods 
reached  the  customer  from  seven  to  ten  days  before 
they  were  promised,  their  compliments  were  from 
the  heart.  W^ithin  six  months,  the  attitude  toward 
that  company  of  people  throughout  the  entire  dis- 
trict, had  changed.  Customers  believed  what  they 
were  told.  They  had  confidence  in  the  company, 
the  sales  manager  had  leisure  to  consider  pushing 
other  lines,  and  overtime  congestion  and  inefficiency 
at  the  factory  became  a  thing  of  the  past. 

Strategic  Type. — It  would  not  be  possible  to  adopt 
quite  this  plan  of  procedure  in  the  second  type  of 
business.  If  you  tell  a  customer  flatly,  even  if  tact- 
fully, that  he  can't  have  the  goods  until  such  and 
such  a  date — long  in  advance  in  many  cases — he  will 
forego  his  preference  and  buy  from  your  competitor. 
For  that  reason  it  is  out  of  the  question  to  act  always 
according  to  the  arbitrary  law  that  places  the  deci- 
sion concerning  the  date  in  the  hands  of  the  produc- 
tion department.  The  individual  case  must  be  care- 
fully considered. 

The  policy  adopted  by  a  certain  large  concern  that 
controls  some  twenty  factories,  each  with  its  own 
selling  force,  meets  the  situation  admirably.  It  had 
been  the  custom  for  the  sales  manager  in  one  of  these 
factories — a  plant  employing  about  two  thousand 
men — to  rush  into  the  office  of  the  production  man- 
ager with  orders  to  turn  out  a  certain  number  of  say 


PRODUCTION  AND  SALES  CONTROL    341 

"X  34  industrial  locomotives "  by  such  and  such  a 
date.  The  production  manager  would  protest  that 
these  orders  would  interfere  with  the  other  work,  but 
he  would  be  overawed  by  the  stronger  personality 
of  the  sales  manager,  who  was  well  equipped  to  prove 
his  points,  and  who  was  inclined  to  regard  the  fac- 
tory as  chronically  overloaded  and  protesting  any- 
way. Consequently,  schedules  were  upset  and  the 
inefficiencies  usual  under  such  circumstances  resulted 
in  both  departments.  Naturally  conditions  became 
worse  and  worse,  until  finally  this  rule  was  laid 
down:  "No  production  orders  shall  be  accepted  by 
the  Factory  unless  signed  by  the  General  Manager." 
What  happened  as  a  result  of  the  order  was  this: 
Whenever  the  sales  department  secured  an  order  de- 
manding early  delivery,  the  sales  manager  went  to 
the  production  manager,  not  to  bluff  and  browbeat 
him,  but  to  find  out  what  the  factory  could  do.  The 
planning  sheet  was  brought  out,  and  in  frank  con- 
ference the  two  men  decided  what  was  the  exact  rela- 
tive importance  of  the  new  order  to  the  orders  al- 
ready scheduled.  If  the  new  order  was  more  import- 
ant, it  was  given  precedence  over  some  old  order. 
That  was  the  only  decision  allowed  the  sales  man- 
ager— and  it  was  a  decision  well  within  his  province 
since  he,  of  all  men  in  the  organization,  was  most 
closely  in  touch  with  his  customers  and  their  needs, 
and  knew  best  the  danger  of  losing  them.  This  point 
decided,  the  production  order  was  then  sent  through 
the  usual  channels,  the  credit  was  O.K.'d,  and  so  on, 
and  the  order  came  to  the  general  manager  for  his 
signature.  Then — and  not  till  then — it  became  an 


342          EXECUTIVE  STATISTICAL  CONTROL 

order  to  the  factory.  This  plan  made  the  general 
manager  a  court  of  last  resort  and  insured  for  botli 
sides  a  fair  and  complete  hearing  in  case  of  dispute. 
It  also  brought  the  sales  and  production  departments 
together  on  a  basis  which  had  never  existed  before. 
Mutual  respect,  born  of  a  mutual  understanding  of 
each  other's  problems  and  difficulties,  frankly  dis- 
cussed, made  possible  many  economies  in  the  fac- 
tory and  changes  in  the  product  that  made  selling 
easier. 

Competitive  Type. — In  the  third  type  of  business 
the  sales  department  is  supreme.  Owing  to  severe 
competition,  the  customer  must  always  be  placated 
by  earlier  deliveries,  better  service,  or  some  other 
special  favor.  The  factory  must  bow  to  the  will  of 
the  sales  department,  and  if  inefficiencies  result  in 
high  costs  of  production  the  business  is  doomed.  The 
fault  lies  with  the  original  investor,  and  cannot  be 
remedied  by  the  existing  executive  force. 

Establishing  Close  Relationship  between  Depart- 
ments.— The  value  of  a  close  relationship  between 
the  members  of  the  sales  and  the  manufacturing 
force  is  coming  to  be  more  and  more  clearly  realized 
in  our  large  corporations.  The  problem  is  a  difficult 
one  on  account  of  the  differences  in  the  training  and 
the  mental  attitude  of  the  respective  personnels.  The 
first  requisite  for  a  proper  mutual  understanding,  is 
to  place  the  two  departments  upon  a  basis  where  they 
will  have  an  equal  right  and  opportunity  to  be  heard. 
Then,  each  department  should  be  educated  in  the 
other's  problems.  Both  should  be  encouraged  to 
make  suggestions  as  to  changes  in  either  department 


PRODUCTION  AND  SALES  CONTROL    343 

which  will  assist  the  other.  And  lastly,  the  power  of 
final  decision  should  be  placed  where  it  belongs — in 
the  hands  of  a  just  general  manager  who  recognizes 
the  temperamental  differences  in  the  two  types  of 
personnel.  Increased  efficiency  in  both  departments, 
as  well  as  an  increase  in  the  net  profits  will  certainly 
be  brought  about  if  this  line  of  procedure  is  followed. 

Inspection  Department  a  Point  of  Contact. — An- 
other point  of  contact  between  the  sales  and  operat- 
ing departments  and  the  customer  lies  in  what  is  gen- 
erally known  as  the  inspection  department;  the  loca- 
tion of  this  department  is  immaterial.  The  psychol- 
ogy of  inspection  never  varies.  Most  inspectors  be- 
lieve that  since  they  are  hired  to  inspect  the  goods 
for  the  benefit  of  the  customer,  their  efficiency  should 
be  measured  by  the  amount  of  goods  they  reject.  They 
think  that  the  more  defects  they  can  pounce  upon, 
the  more  likely  they  are  to  have  their  salaries  raised. 

When  I  was  in  Detroit  it  was  the  general  working 
rule,  among  the  manufacturers  of  automobile  parts, 
that  goods  were  never  to  be  shipped  to  the  car  manu- 
facturers until  scouts  brought  in  the  word  that  the 
customer's  production  was  being  delayed  for  lack  of 
parts.  Then  a  truckload  of  them  was  sent.  When 
these  parts  reached  the  customer,  he  was  so  anxious 
for  them  that  he  had  them  put  into  the  machine  so 
fast  that  the  inspectors  didn't  have  time  to  think 
about  boosting  their  salaries.  Customers  allowed 
parts  sent  at  other  times  to  lie  around  and  rust,  or 
to  become  marred,  and  had  them  so  often  inspected 
and  reinspected  that  rejections  often  amounted  to  40 
^nd  50  per  cent  of  the  number  shipped. 


344         EXECUTIVE  STATISTICAL  CONTROL 

Almost  any  one  who  has  worked  with  inspectors 
to  any  extent,  has  tried  the  experiment  of  having 
some  stuff  previously  rejected  run  through  and 
has  seen  it  passed  with  favorable  comment.  Un- 
fortunately, the  only  satisfaction  obtainable  is  the 
sardonic  grin  or  the  stifled  guffaw.  You  can't  tell  a 
man  who  has  it  in  his  power  to  make  you  suffer 
heavily,  what  an  idiot  he  is.  As  superintendent  of  a 
plant,  I  once  had  a  terrible  time  with  a  government 
inspector  who  had  a  microscopic  eye  and  a  heart  of 
flint.  He  seemed  never  to  tire  of  detailed  inspection. 
Finally  the  weather  came  to  my  rescue.  The  temper- 
ature in  the  yard  where  he  was  working  dropped  to 
four  degrees  below  zero.  We  put  an  extra  stove  in 
the  shanty  and  delegated  a  boy,  under  threat  of  dis- 
memberment, to  keep  it  red  hot.  Needless  to  say,  the 
inspector  hugged  the  stove — our  percentage  of  re- 
jections dropped  50  per  cent. 

This  is  not  as  it  should  be.  The  manufacturer 
should  not  be  at  the  mercy  of  the  whim,  the  tempera- 
ment, or  the  indigestion  of  some  half-educated  man 
of  small  calibre  who  delights  to  exert  his  authority. 

The  sales  and  operating  departments  are  generally 
not  too  friendly,  for  reasons  that  I  have  already 
stated.  And  unfortunately,  to  make  matters  worse, 
the  sales  department  too  often  takes  the  part  of  the 
customer  against  the  factory.  Add  to  these  causes 
the  feeling  of  friendship  between  customer  and  sales- 
man, engendered  by  dinners  and  entertainment  en- 
joyed together,  and  the  salesman's  fear  of  losing  a 
customer,  and  it  is  easy  to  understand  why  the  in- 
spector's judgment  is  likely  to  cloud  that  of  the 


PRODUCTION  AND  SALES  CONTROL    345 

salesman.  Defects  can  always  be  found  in  ma- 
terial, and  if  the  salesman  takes  the  customer's  side 
in  arguments  concerning  rejections,  it  is  often  all  too 
easy  to  persuade  the  general  manager  that  his  slogan 
of  "Quality  First"  is  being  disregarded  by  a  careless 
factory  superintendent.  At  any  rate,  under  casual 
management  when  rejections  are  heavy  the  superin- 
tendent is  usually  presumed  to  be  guilty  until  he  is 
able  to  prove  his  innocence. 

The  Ultimate  Remedy. — After  all  the  ultimate 
remedy  rests  with  such  impartial  organizations  as  the 
Society  for  Testing  Materials,  where  engineers  of 
broad  knowledge  and  unimpeachable  integrity  devise 
specifications  which  establish  standards  of  quality 
that  are  reasonable  and  fair  to  both  manufacturer 
and  customer.  It  is  only  to  be  regretted  that  as  yet 
only  a  comparatively  narrow  field  is  covered.  In  the 
meantime,  however,  certain  well-known  firms  of  en- 
gineers will  send  out  trained  inspectors  who  are  cap- 
able of  viewing  a  situation  impartially,  and  who  will 
pass  upon  a  product  strictly  from  the  standpoint  of 
the  use  to  be  made  of  it  and  the  strains  that  it  will 
have  to  endure. 

Manufacturers  who  are  not  in  a  position  to  take 
advantage  of  such  help  as  this,  will  find  a  remedy  in 
the  " committee  system."  The  executive  should  ap- 
point a  board  made  up  of  his  most  broad-minded 
salesmen — instructed  to  represent  the  customer's 
viewpoint — and  of  his  most  intelligent  factory  execu- 
tives— instructed  to  fight  for  the  acceptance  of  every 
sort  of  defective  product  whose  defects  cannot  be 
avoided.  Then,  if  the  executive  himself  will  preside 


346          EXECUTIVE  STATISTICAL  CONTROL 

impartially,  he  will  secure  a  set  of  specifications  that 
will  be  of  great  value  to  the  firm  if  they  are  enforced 
to  the  letter,  with  the  whole  weight  of  the  organiza- 
tion behind  them.  Such  a  board,  if  properly  handled, 
will  work  out  details  in  such  a  way  that  the  company 
can  adopt  for  its  motto: 

IT  IS  THE  DUTY  OF  EVERY  SALESMAN  TO  SE- 
CURE THE  ACCEPTANCE  OF  ALL  MATERIAL  THAT 
CAN  BE  USED  WITHOUT  DAMAGING  THE  ULTI- 
MATE REPUTATION  OF  THE  FIRM. 

The  practice  of  this  principle  will  secure  the  ac- 
ceptance of  nearly  all  the  goods  that  should  be  ac- 
cepted, and  will  reduce  "temperamental"  rejections 
to  a  minimum.  The  reason  is,  that  once  rigid  and 
detailed  specifications  have  been  adopted  in  a  con- 
ference between  the  operating  and  the  sales  depart- 
ment, the  factory  knows  exactly  what  it  must  produce, 
and  the  sales  department  knows  exactly  what  the 
customer  should  accept  and  what  the  salesmen  are 
expected  to  educate  the  customer  to  accept.  Under 
such  circumstances,  it  is  comparatively  easy  for  the 
general  manager  to  keep  himself  informed  as  to  what 
proportion  of  "within  specification"  articles  are 
being  rejected,  and  to  find  out  which  customers  are 
rejecting  them.  Such  information  indicates  at  once 
where  an  educational  campaign  is  necessary. 

When  a  man  is  of  sufficient  calibre  to  become  gen- 
eral manager  of  one  of  our  large  corporations,  he 
is  usually  a  man  of  sufficient  breadth  to  understand 
the  damage  his  company  will  suffer  if  it  has  the  repu- 
tation of  having  unfair  inspectors  and  of  making  an 


PRODUCTION  AND  SALES  CONTROL 


347 


excessive  number  of  rejections.  Such  companies  pay 
for  a  bad  reputation  many  times  over,  since,  in  time, 
when  the  firms'  practices  become  generally  known, 
bidders  add  to  their  bid  price  the  cost  of  unfair  in- 
spection. If  the  chief  executive  of  the  manufacturing 
concern  therefore  can  get  the  facts  before  the  chief 
of  the  rejecting  company,  in  most  cases  he  may  be 
sure  of  fair  treatment. 

Tabulating  Rejections.— The  first  step,  of  course,  is 
to  tabulate  the  rejections.  Take,  for  instance,  the 
case  of  a  company  manufacturing  automobile-body 
parts.  Rejections  were  tabulated  every  week  as  fol- 
lows: 

First  Week  First  Week 

in  November  in  February 

Rough  stock 15.70  per  cent  1.40  per  cent 

Scratched   on   Load 8.30      "  5.20      " 

Punched  Wrong 1.30      "  .90      " 

Flat  Enamel 4.10      "  2.70      " 

Crooked  Thread 

Metal  Scratched 80      "  2.60 

Scratched  in  Oven 4.40      "  4.30      " 

Dirty    23.30      "  25.60      " 

Soft   4.10      " 

Split  in  Pocket .05 

Silky    .05      " 

Spot  Weld  Poor .30      " 

Over-Baked 7.40      "  23.00      " 

Runs    30.40      "  28.60      " 

Dents  3.80  1.20 

Miscellaneous 50  .... 

Total    100  100  " 

Proportion  of  Shipments  Re- 
jected    20  13 


348         EXECUTIVE  STATISTICAL  CONTROL 

The  first  result  of  such  a  tabulation  was  naturally 
to  direct  the  attention  of  the  management  to  the 
manufacturing  departments  responsible  for  the  re- 
jections, and  to  the  firms  who  had  furnished  defec- 
tive material.  The  first  step  toward  improvement 
was  to  divide  the  reasonable  rejections  from  the  un- 
reasonable rejections,  according  to  customers.  A 
little  later  the  vice-president  of  the  manufacturing 
company  invited  the  general  manager  of  the  purchas- 
ing company  to  a  luncheon,  at  which  they  conferred 
concerning  future  co-operation.  The  last  step  was  the 
reorganization  of  the  buying  company's  inspection 
department. 

Qualifications  of  the  Manager. — Personality  is  a 
valuable  asset  in  business.  But  when  personality 
merges  into  temperament — whether  in  grand  opera, 
politics,  salesmanship,  or  in  the  inspection  of  goods — 
a  manager  becomes  a  necessity.  Such  a  manager  must 
possess  the  judicial  temperament — must  be  capable 
of  rendering  firm  and  impartial  decisions,  and,  in  order 
to  retain  his  poise  in  the  presence  of  the  hysterics  of 
the  diva,  before  the  fiery  oratory  of  the  demagogue, 
or  under  the  hypnotic  spell  of  the  sales  manager,  he 
must  have  the  facts  in  such  form  that  when  they  are 
produced  the  case  is  closed.  Unless  he  can  marshal 
his  facts  in  this  way,  decision  will  be  based  upon  opin- 
ion, and  casual  management  will  prevail. 


CHAPTER  XIX 
SALES  CONTROL 

Executive  Should  Know  Both  Operating  and  Sales 
Branches. — The  paths  of  the  men  who  have  risen 
from  the  ranks  to  the  command  of  our  great  corpor- 
ations, necessarily  have  led  either  through  the  oper- 
ating or  through  the  sales  department.  Upon  ar- 
rival at  the  point  at  which  the  two  professions  merge 
— for  factory  management,  as  well  as  salesmanship, 
has  become  a  profession  during  the  last  ten  years — 
the  newly  installed  chief  has  many  dark  hours.  He 
has  specialized  in  one  branch  of  the  business.  The 
other  is  unknown  territory — and  our  imaginations 
tend  to  people  such  regions  with  strange  and  terrible 
monsters,  as  the  ancients  pictured  the  unexplored 
countries  beyond  their  own. 

I  have  already  taken  the  executive  through  the 
operating  departments,  and  have  attempted  to  point 
out  the  facts  which  should  be  in  his  possession.  I 
could  not  take  him  through  the  sales  department  in 
a  similar  way  without  the  aid  of  another  five  pre- 
ceding volumes.  There  are,  however,  a  few  funda- 
mentals that  can  be  covered  in  a  chapter,  and  a 
knowledge  of  these  may  serve  to  lighten  some  por- 
tion of  a  dark  hour  for  the  executive  who  has  entered 
into  his  kingdom  after  a  long,  hard  climb  upon  the 

349 


350         EXECUTIVE  STATISTICAL  CONTROL 

path  which  leads  upward  through  the  factory  to  the 
general  managership. 

The  Salesman  Type.— First,  then,  there  are  two 
distinct  types  of  men  in  every  well-developed  sales 
organization.  There  is  the  salesman  type  and  the 
sales  manager  type.  A  cynic  recently  described  to 
me  the  individuals  of  these  two  classes  as  "the  men 
who  pad  expense  accounts  and  the  men  who  rip  the 
padding  out  of  expense  accounts."  The  phrase  illus- 
trates a  fundamental  difference  in  the  two  types  of 
mind.  The  salesman  is  the  promoter.  He  is  tempera- 
mental. He  won't  be  bothered  with  detail.  He  re- 
fuses to  be  what  he  considers  cheese-paring  and 
miserly,  and  to  scrimp  his  expenses.  His  life  is  a 
hard  one — at  best  spent  on  sleeping  cars  and  in  noisy 
hotels,  and  at  worst  on  accommodation  trains  and 
in  unspeakable  country  taverns.  Such  luxuries  as 
he  may  enjoy  he  regards  as  his  by  right,  necessities 
if  he  is  to  preserve  that  self-respect,  confidence,  and 
enthusiasm  which  enable  him  to  approach  the  pros- 
pective buyer  successfully. 

The  Sales  Manager  Type. — The  sales  manager,  on 
the  other  hand,  must  combine  an  infinite  capacity  for 
det-ail  with  that  breadth  of  understanding  which  will 
enable  him  to  control,  assist,  and  inspire  the  artists 
who  compose  his  staff.  He  must  be  able  to  plan  a 
sales  campaign — a  task  that  involves  the  collection, 
consideration,  and  correlation  of  innumerable  facts. 
He  must  know  how  to  bring  softly  to  earth  again  the 
salesman  whose  good  fortune  or  whose  ingenuity  has 
resulted  in  a  volume  of  sales  that  has  sent  him  soar- 
ing off  among  the  clouds  with  head  so  inflated  that 


SALES  CONTROL  351 


he  is  in  danger  of  becoming  useless  to  the  company 
and  to  himself.  He  must  breathe  courage  and  opti- 
mism into  the  man  whom  hard  luck  has  driven  to 
the  verge  of  despair.  He  must  know  when  to  cut  his 
advertising  expense  to  a  bare  pittance,  and  when  to 
spend  money  like  water.  He  must  be  able  to  take 
the  viewpoint  of  the  customer,  of  the  salesman,  and 
of  the  stockholder.  Incidentally  this  type,  as  may  be 
imagined,  is  not  very  common.  The  sales  manager 
usually  commands  a  high  salary — and  he  earns  it. 

Importance  of  Tabulating  Data. — The  newly  pro- 
moted general  manager,  whose  view  of  the  sales  de- 
partment has  been  acquired  from  the  standpoint  of 
the  factory,  will  do  well  to  make  haste  slowly  in  in- 
troducing innovations  into  the  sales  department.  In 
the  first  place,  he  is  dealing  with  a  class  of  men  en- 
tirely different  from  that  which  he  has  had  to  con- 
trol before.  In  the  second  place,  he  is  coming  from 
a  life  in  which  things — machines  and  materials — 
played  a  large  part,  into  a  realm  where  the  chief 
problem  is  the  handling  of  men.  In  the  solution  of 
this  problem  a  knowledge  of  applied  psychology  is 
the  prime  requisite. 

His  safest  move — and  the  one  which  will  produce 
for  his  company  and  for  himself  the  greatest  results 
in  the  end — is  to  insist  tactfully  upon  the  continual 
tabulation  of  facts.  The  sales  department  exists  for 
just  three  ends,  or  objects: 

1.  To  sell  the  largest  possible  quantity  of  goods. 

2.  To  sell  these  goods  at  the  highest  possible  price. 

3.  To  sell  these  goods  with  the  least  possible  outlay  of 
money. 


352         EXECUTIVE  STATISTICAL  CONTROL 

These  three  things — Quantity,  Price,  and  Sales  Ex- 
pense— determine  the  dividends  of  the  stockholder,  as 
well  as  the  fate  of  the  business,  of  the  executive,  and 
of  the  laboring  man.  And  the  tabulation  of  data — 
a  process  which  keeps  vital  facts  concerning  price, 
sales  expense,  and  quantity  continually  before  the 
chief  executive — is  no  more  a  burden  upon  the  busi- 
ness than  an  efficient  cost  system. 

Knowing  the  "Bread"  from  the  "Cake."— In  ad- 
dition, an  exact  knowledge  of  which  lines  of  goods 
are  the  most  profitable,  and  just  how  much  more 
profitable  such  classes  are  than  certain  others,  en- 
ables the  management  to  advise  the  sales  organiza- 
tion what  to  push,  and  what  to  sell  only  when  neces- 
sary. Most  lines  consist  of  "bread"  and  "cake" — 
the  piece  goods  and  the  notions,  in  the  jobbing  busi- 
ness; the  staples  such  as  flour  and  sugar,  and  the 
specialties  such  as  fancy  canned  goods,  in  the  grocery 
business.  The  one  class  supports  the  business  with 
a  bare  margin  of  profit,  and  the  other  buys  automo- 
biles for  the  grocer — if  he  can  dispose  of  sufficient 
cake  to  customers  who  come  to  buy  bread.  The  suc- 
cessful manager  must  know  which  of  his  goods  are 
the  "bread"  and  which  are  the  "cake" — and  which 
cake  has  the  thickest  frosting  and  the  most  plums. 

Statistics  Concerning  Territories. — The  general 
manager  should  have  in  his  possession  statistics 
which  will  show  him  immediately  which  portions  of 
his  sales  territory  are  most  profitable  to  work.  It 
is  important  that  he  know  where  each  class  of  goods 
will  give  the  greatest  margin  of  profit  after  trans- 
portation charges,  sales  expense,  and  cost  of  producr 


SALES  CONTROL 


353 


tion  have  been  subtracted  from  the  net  sales  price. 
The  cost  of  selling  the  same  product  in  adjacent 
states  varies  sometimes  as  much  as  50  per  cent.  One 
state  I  have  in  mind  consists  of  small  towns  situated 
close  together.  The  salesman  who  works  that  state 


IMPERIAL  MFG.  CO. 
SALES  EFFICIENCY  RECORD                              FOR  MONTH  OF  ^«^<  1916 

PLACE 

TO  DATE 

NAME  OF  SALESMAN 

PRICE 

QUANTITY 

QUALITY 

ECONOMY 

EFHC 

1 

toy. 

;&./:*  /?/*<.  4 

?<>'/. 

?S7» 

rry. 

?°?. 

f/y. 

2 

f/"/a 

IdJfgZii 

?»'/. 

?s'/> 

/yy. 

wy. 

fry. 

3 

7*y. 

A-  t.J^~s     • 

fJfr 

f/y. 

S9-t 

f/% 

ny. 

4 

7*?. 

^/y  o  £ 

?'•/' 

?<>% 

<&'/. 

/ft 

rrs. 

5 

73'/. 

W  £>.***J~&&~- 

?//• 

ft/. 

76jt 

ftS* 

s>y. 

6 

7t>7> 

£^   fa.  '  <ft^)U<s<-££ 

sr/. 

&/* 

7'?. 

7*7' 

76°/> 

7 

8 

9 

10 

~~-     L 
*—  --w-», 

28 

r^-_ 

^^==^—=^^  _•     -     ^-~ 

"- 

29 

30 

31 

FIG.  1Q.    THE  "SCORE  BOARD"  SHOWING  THE  EFFICIENCY  OF 

EACH  SALESMAN  IN  TERMS  OF  THE  EFFECT  HIS  ACTS  HAVE  UPON 
THE  DIVIDENDS  OF  THE  COMPANY.     SEE  ALSO  78,  79  AND  82. 

spends  little  for  railroad  fare,  and  the  bill  for  his 
evening's  entertainment  includes  only  the  cost  of  his 
own  and  his  customer's  ticket  to  the  movies  and  a 
charge  of  twenty  cents  for  "  raspberry  sody."  In  the 
next  state,  the  cities  are  large  and  far  apart.  Sales> 
men's  expense  accounts  include  charges  for  Pullman 


354          EXECUTIVE  STATISTICAL  CONTROL 

tickets,  dinners  at  expensive  hotels,  and  theatre 
tickets  at  metropolitan  prices.  If  the  current  facts  in 
regard  to  the  expense  of  making  sales  in  each  terri- 
tory are  known  to  the  general  manager,  when  occa- 
sion arises  for  any  choice  as  to  which  territory  to 
push,  the  company's  policy  decides  itself. 

Sales  Lost. — One  executive  I  know  has  taken  for 
his  motto:  " Sales  lost  are  more  important  than  sales 
made."  Through  this  slogan  he  delicately  conveys 
to  his  sales  force  the  thought  that  they  can  do  more 
for  their  company  if  they  will  analyze  their  failures 
honestly,  and  learn  how  to  avoid  the  same  mistakes 
in  the  future,  than  they  can  by  talking  about  what 
big  sales  they  have  made,  thinking  how  smart  they 
are,  and  complaining  how  little  the  firm  appreciates 
them.  In  order  to  force  his  men  to  analyze  their  fail- 
ures, this  manager  has  divided  into  five  or  six  stages 
the  sales  steps  that  are  necessary  in  the  selling  of  his 
particular  product.  Whenever  a  salesman  loses  a 
sale,  he  is  required  to  check  the  exact  point  at  which 
he  failed  and  to  send  the  record  to  the  manager. 

"Double-Star"  Sales.— Other  statistics  that  are 
gathered  very  carefully,  have  to  do  with  what  he 
calls  his  "double-star  sales."  If  a  salesman  can  close 
a  sale,  without  the  fact  that  material  will  be  required 
by  the  customer  getting  into  a  trade  journal,  he  is 
credited  with  a  "double-starred  order,"  and  the  fact 
is  posted  on  a  bulletin.  It  can  easily  be  imagined  how 
such  a  method  stirs  up  a  spirit  of  competition  among 
the  various  members  of  the  sales  force,  and  also  how 
it  enables  the  manager  to  keep  closely  in  touch  with 
his  men. 


SALES  CONTROL  355 

Salesmen's  Expense  Accounts. — The  old-fashioned 
super-temperamental  type  of  salesman  regards  any 
inquiry  into  his  expense  account  as  reflection  on  his 
integrity.  The  more  he  has  to  say  about  outraged 
honor  and  stifled  initiative,  the  closer  should  he  be 
watched.  The  man  of  this  type  who  carries  his 
bluster  so  far  as  to  resign,  usually  quits  in  order  to 
avoid  being  fired.  He  knows  his  expense  account 
won't  stand  the  light  of  publicity.  As  for  the  man- 
ager, he  should  have  the  expense-account  data  com- 
piled in  such  a  way  as  to  reflect  true  conditions,  and 
he  should  have  expenditures  segregated  according  to 
territories,  with  road  expense  per  day  separated  from 
city  sales  expense,  when  men  are  traveling  only  a  por- 
tion of  their  time.  If  he  does  these  things,  he  will 
secure  information  which  will  allow  him  to  discuss 
conditions  fully  and  frankly  with  his  sales  depart- 
ment without  any  fear  that  his  criticism  will  be  of 
the  unjust  kind  which  takes  the  "pep"  out  of  a  sales- 
man faster  than  anything  else.  (Figure  77.) 

It  is  very  important  for  the  man  who  is  directing 
the  sales  policy  of  a  large  concern  to  keep  himself 
informed  upon  the  extent  and  activity  of  his  market. 
Suppose  every  salesman  who  visits  a  town  is  asked 
to  compile  a  list  of  all  those  who  use  his  company's 
product.  Suppose  he  is  asked  to  visit  each  such  pros- 
pect and  determine  as  nearly  as  possible  his  stock, 
his  rate  of  consumption  or  re-sale,  and  the  probable 
date  and  quantity  of  his  next  order.  Such  data, 
properly  compiled,  give  the  executive  a  very  clear 
idea  of  the  extent  of  his  market,  and  of  the  pro- 
portion secured  by  his  company  of  all  the  sales  made 


356 


EXECUTIVE  STATISTICAL  CONTROL 


3 

5       5 

*:(* 
$             k 

A               •* 
3            C 

;     'i 

3      ? 

^ 

j 

FFR 

\ 

Sf 

? 

> 

| 

? 

% 

s- 

APR 

-/ 

X 

y^ 

J 

1 

0- 

^J 
1 

1 

1  1  JMF 

1 

jh 

i 

r^    > 

/° 

sR 

II  11  V 

§ 

<§ 
i 

!* 

f 

Co 

ri 

Allfi 

\ 

1 

cirpT 

! 

5 

•^ 

OCT 

\ 

\ 
\ 

Ninv 

I 

^N 

DTP 

1 

\ 

FIG.   77.      CHART  SHOWING  RELATION  BETWEEEN  SALES 
EXPENSE   AND   NET  SALES 


SALES  CONTROL  357 

in  the  territory.  These  data  not  only  furnish  him 
with  a  splendid  check  upon  the  efficiency  of  his  sales 
force,  but  also  give  him  a  broader  view  of  his  busi- 
ness and  render  the  determination  of  policy,  as  re- 
gards extension  or  retrenchment,  a  definite  process  of 
fact-analysis  instead  of  a  jump  in  the  dark. 

Purely  Sales  Statistics. — I  cannot  attempt  to  de- 
scribe here  the  great  field  of  purely  sales  statistics, 
which  involves  the  planning  of  routes,  the  graphic 
representation  of  trade  conditions  by  means  of  maps 
and  colored  pins,  and  the  card-indexing  of  customers. 
The  object,  in  compiling  such  statistics,  is  to  give  the 
new  man  a  mass  of  information  that  will  be  of  value 
to  him  when  he  reaches  a  town  he  has  never  visited 
before — information  relating  to  every  customer,  even 
to  a  description  of  each  one's  special  hobby,  be  it 
bulldogs  or  fishing.  Such  matters  are  covered  in 
courses  on  salesmanship;  they  have  no  place  in  this 
volume.  Charts  showing  sales  by  territories,  by 
months,  and  by  years,  the  general  manager  should 
have  always  before  him.  Maps  showing  where  each 
salesman  is  located  each  day,  belong  in  the  office  of 
the  sales  manager. 

Scientific  Management  and  the  Sales  Department. 
— The  Tabor  Manufacturing  Company  has  applied 
Dr.  Taylor 's  principles  of  scientific  management  in 
their  sales  department  with  the  same  conscientious- 
ness and  attention  to  detail  with  which  it  has  applied 
them  in  the  shop.  The  result  is  that  same  perfection 
and  smoothness  of  operation  which  is  the  despair  of 
every  executive  trained  under  casual  management 
who  visits  their  plant.  Every  move  is  planned  days 


358         EXECUTIVE  STATISTICAL  CONTROL 

ahead.  Standards  are  set  with  scientific  accuracy, 
and  salesmen  are  paid  in  proportion  to  their  accom- 
plishment. 

The  movement  to  introduce  scientific  management 
into  the  sales  department  of  manufacturing  corpor- 
ations, is  as  yet  in  its  infancy.  The  general  intro- 
duction of  such  management  is  by  no  means  an  im- 
possibility, however,  as  has  been  demonstrated  in  a 
number  of  instances.  For  instance,  Figures  78  and  79 
illustrate  a  sales  bonus  system  devised  for  a  company 
manufacturing  two  classes  of  products  as  based  on 
the  salesman's  efficiency  as  to  price  and  as  to  quantity 
of  sales. 

The  quantity  to  be  sold  in  each  territory  (in  this 
case,  Product  L-P  and  L-B,  James  Smith,  salesman) 
was  standardized  a  year  in  advance  and  a  reasonable 
price  was  set.  The  standard  quantity  was  then  divided 
by  the  actual  quantity  sold,  and  the  per  cent  equalled 
the  quantity  efficiency.  Price  efficiency  was  similarly 
determined.  Quantity  efficiency  was  counted  twice 
and  price  efficiency  once,  the  result  was  the  total  effi- 
ciency for  the  product  as  shown  by  the  charts.  Results 
were  posted  as  shown  by  Figure  76.  Examples  would 
be  more  common  if  it  were  not  for  the  common  and 
erroneous  belief  that  salesmanship  means  personality 
only,  and  that  the  best  salesman  must  always  be  the 
sales  manager.  Wherever  you  find  the  true  sales  man- 
ager in  control — the  man  of  judicial  temperament,  who 
dissects,  analyzes,  and  decides  according  to  carefully 
collected  facts — instead  of  the  bull-necked  hypnotist, 
who  is  governed  by  opinion,  there  you  will  find  at  least 
elements  of  scientific  sales  management. 


SALES  CONTROL 


359 


i 

JAN. 
FEB. 
MAR. 
APR. 
MAY 
JUNE 

< 

JAN. 
FEB 
MAR. 
APR. 
MAY 
JUNE 

EFFICIENCY   PERCENT 

—          f\JO»          ^cnc>-JCOtDO~iN> 
3OOQOOOOOOOOO 

> 

o"  — 

<« 

^ 

•h 

$  t^ 

\ 

1 

7a 

) 

t 

/ 

r 

EFFICIENCY     PER  CENT 
3        o        o       o        oooo^oooo 

? 

r, 

t 

•x  

•«« 

ITS' 

H^ 
i" 

^ 

to 

—  —  -^ 

t~^C 

S*- 

•^4, 

• 

/I 

<s 

360          EXECUTIVE  STATISTICAL  CONTROL 

Three  Classes  of  Business:    Quality  Monopoly. — A 

true  sales  monopoly  is  a  prize  which  falls  to  compara- 
tively few  industries.  The  best  business  which  the 
average  sales  manager  can  obtain  for  his  firm  is  that 
in  which  he  has  a  quality  monopoly — or  in  which  the 
customer  believes  he  has  such  a  monopoly.  If  the 
goods  to  be  sold  are  of  exceptional  quality,  or  are 
enough  above  the  average  to  enable  his  men  by  exer- 
tion of  their  personalities  to  persuade  the  prospective 
customer  that  the  quality  is  quite  exceptional,  there 
is  always  a  certain  amount  of  business  that  can  be 
obtained  at  prices  above  those  of  competitors.  This 
means,  of  course,  larger  profits  to  the  firm — and  the 
greater  the  proportion  of  such  business  obtainable, 
the  greater  will  be  the  firm's  prosperity. 

Business  Secured  through  "Preference." — Next  in 
point  of  desirability  is  business  secured  through  pref- 
erence. I  mean  by  that,  business,  from  customers 
who,  on  account  of  a  personal  friendship  with  some 
one  in  the  firm,  or  special  favors  granted  them  with 
respect  to  deliveries  and  the  like,  will  give  a  certain 
concern  their  orders,  provided  this  firm  will  meet  its 
competitors'  prices.  This  sort  of  business  usually 
carries  a  fair  margin  of  profit. 

Business  Obtained  through  Price- Cutting. — The 
third,  and  least  desirable,  class  of  business  is  that 
which  must  be  obtained  by  means  of  price-cutting — 
the  trade  of  "the  professional  shopper"  or  "price- 
peddler" — and  business  from  districts  in  which  the 
competition  is  necessarily  of  the  cut-throat  variety. 
This  kind  of  business  usually  means  sales  at  cost, 
or  at  a  loss,  and  if  the  firm  that  takes  it  wishes  to 


< 

JAN. 
FEB 
MAR 
APR. 
MAY 
JUNE 

< 

JAN. 
FEB. 
MAR. 
APR. 
MAY 
JUNE 

EFFICIENCY  PERCENT 

—           PO         OJ           •£*           <Ji        <T\             *-J          CO           c£>         O          —            r*o 

3       o       o      o       o       o     o         ooooo        o 

* 

^J§ 

m 

^ 

I 

jtf 

'i 

^ 

_ 

1 

I 

)• 

1? 

i 

1 

bl 

""" 

-^ 

8 

^ 

// 

'b 

J 

s 

1 

EFFICIENCY    PERCENT 

JOOOOOOOOOOOO 

« 

S-! 

-IV 

'i 

;  !l 

V"--- 

"^S 

;>- 

^ 

\ 

/ 

*«^ 

362          EXECUTIVE  STATISTICAL  CONTROL 

continue  its  existence,  the  only  justification  for  ac- 
cepting such  trade  is  a  desire  either  to  increase  the 
output  in  an  attempt  to  reduce  production  costs,  or 
to  avoid  the  heavy  losses  that  result  from  shut- 
downs. 

Scientific  Management,  and  Scheduling. — It  goes 
without  saying  that  the  higher  the  quality  of  the 
product,  the  greater  will  be  the  proportion  of  the 
company's  sales  which  will  come  within  the  first  of 
these  three  classes, — and,  consequently,  the  greater 
the  firm's  net  profits  and  the  more  pleasant  and 
profitable  the  work  of  the  salesmen.  Just  how  scien- 
tific management  improves  the  quality  of  the  product 
by  making  it  directly  to  each  workman's  interest  to 
safeguard  that  product  and  to  exercise  his  ingenuity 
to  find  out  how  to  improve  its  quality,  has  been  told 
elsewhere. 

To  increase  the  volume  of  the  second  of  these  three 
classes  of  business,  is  the  ideal  of  scientific  sales- 
manship. Business  obtained  through  preference  is  a 
tribute  to  the  personality,  the  power  of  character 
analysis,  and  the  individual  skill  of  the  salesman.  It 
must  be  remembered  that  promptness  in  making  de- 
liveries is  a  very  important  factor  in  the  success  of 
a  firm.  Scientific  management  aids  the  salesmen  by 
scheduling  the  product. 

Every  element  of  the  finished  product — whether  it 
be  an  ingredient  of  a  patent  medicine,  or  a  part  of  an 
automobile — is  scheduled  throughout  its  movement  in 
the  course  of  manufacture — from  the  time  the  cus- 
tomer's order  is  entered,  until  the  finished  product  is 
shipped.  The  scheduling,  as  has  been  seen,  covers 


SALES  CONTROL  363 

the  ordering  of  materials,  the  following  up  of  orders 
for  materials,  the  reception  of  materials,  the  delivery 
of  materials  to  workrooms,  the  primary  and  the  sec- 
ondary operations  upon  materials,  the  assembly  of 
parts,  the  inspection  of  the  completed  product,  and, 
finally,  the  shipment  of  the  product. 

If  every  order  in  the  house  is  so  scheduled,  if  the 
time  of  every  operation  is  known,  as  a  result  of 
standardization,  and  if  each  workman  is  rewarded 
in  accordance  with  his  adherence  to  instructions,  and 
to  this  schedule,  the  factory  is  at  all  times  in  a 
position  to  state  exactly  to  the  inquiring  salesman 
just  when  delivery  can  be  made.  Consequently,  the 
salesman  knows  that  he  is  getting  facts — and  he  also 
knows  just  what  will  happen  to  him  if  he  stretches 
those  facts.  He  is  benefited  in  the  long  run,  and  the 
firm  also  is  benefited,  by  an  unimpeachable  reputa- 
tion for  scrupulously  fulfilling  delivery  promises. 
Other  things  being  equal,  the  result  of  such  a  repu- 
tation is  bound  to  be  a  transfer  of  a  certain  amount 
of  business  from  the  third — and  least  desirable  class 
— to  the  second,  or  preferential,  class.  Furthermore, 
it  should  be  made  to  the  interest  of  the  salesman  to 
further  the  interest  of  the  firm  along  definite  and  pre- 
determined lines. 

The  Bonus  System  and  Price- Cutting.— Paying  a 
salesman  a  straight  salary  is  little  better  than  pay- 
ing workmen  by  the  day.  In  order  that  this  system 
might  be  avoided,  some  one  invented  the  commis- 
sion system — just  as  some  factory  superintendent  in- 
vented the  piece-rate  system  as  a  means  of  escape 
from  the  day-rate  method.  Under  ordinary  circum- 


364         EXECUTIVE  STATISTICAL  CONTROL 

stances,  a  commission  on  his  sales  simply  insures  the 
salesman  a  certain  percentage  of  the  total  amount- 
that  the  firm  secures  from  those  sales.  Suppose  that 
a  salesman  is  selling  boxes  which  cost  90  cents  each, 
and  which  sell  at  an  average  price  of  $1.00,  and  that 
besides  his  salary  he  receives  a  commission  of  2  per 
cent  on  his  sales.  If  he  sells  10,000  boxes,  the  firm 
receives  $10,000,  but  from  this  amount  must  be  de- 
ducted $9000  for  the  cost  of  the  boxes,  and  $200  for 
the  salesman's  commission.  The  firm,  then  makes  a 
net  profit  of  $800,  or  8  per  cent  on  this  man's  sales. 

Now  assume  that  this  salesman  knows  that  if  he 
should  cut  the  price  to  95  cents  he  could  sell  12,000 
boxes,  and  thus  bring  his  sales  up  to  $11,400,  secur- 
ing a  commission  of  $228.  But  what  would  happen 
to  the  firm's  profit!  The  firm  would  receive  $11,400, 
and  from  this  amount  $10,800  would  have  to  be  de- 
ducted for  the  cost  of  the  boxes,  and  $228  for  the 
salesman's  commission.  The  firm's  net  profit  would 
then  be  $375,  or  only  3.2  per  cent  on  this  man's  sales. 
In  other  words,  about  one  third  of  the  profit  would 
have  been  sacrificed  in  order  that  this  salesman 
might  add  $28  to  his  income. 

You  say,  of  course,  that  you  would  "fire"  a  sales- 
man who  would  cut  a  price  in  that  way — that  this 
is  an  extreme  case,  and  so  on.  But  did  you  ever 
stop  to  realize  that  your  method  of  paying  bonuses, 
if  it  is  the  average  method,  is  entirely  wrong  in  prin- 
ciple? That  in  using  it  you  are  begging  your  sales- 
men to  cut  prices?  That  you  are  encouraging  them 
to  indulge  their  natural  human  weakness  for  making 
large  sales,  regardless  of  price? 


SALES  CONTROL  365 

You  can  count  on  the  average  salesman  having 
many  and  plausible  reasons  for  cutting  prices.  Be- 
fore he  cuts  them,  he'll  probably  tell  you  how  bad 
the  market  is,  in  order  that  you  may  be  all  pre- 
pared beforehand.  In  most  cases,  you  have  to  de- 
pend on  him  for  your  knowledge  of  trade  conditions 
in  his  district,  and  it  is  hard  to  question  his  state- 
ments when  a  number  of  customers  back  him  up  in 
his  report  about  hard  times,  as  they  generally  will. 
By  the  time  he  gets  through  with  his  hard-luck 
story,  you  are  willing  to  agree  as  to  the  necessity  for 
cutting  prices,  and  before  you  know  it  you  are  throw- 
ing away  fifteen  dollars  in  profits  for  every  extra  dol- 
lar he  gets  in  commissions.  Moreover,  you  are  doing 
this  solely  because  your  method  of  paying  a  bonus 
cannot  but  lead  him  to  see  a  necessity  for  cutting 
prices! 

Such  a  method  of  payment  is  unfair  to  the  con- 
scientious salesman,  who  tries  to  hold  prices  up;  it 
encourages  the  very  situation  you  are  exhorting  your 
men  to  avoid.  The  commission-on-sales  form  of 
bonus  is  still  further  unfair,  in  that  no  allowances  are 
made  for  differences  between  sales  territories. 

How  are  you  going  to  keep  the  man  with  a  poor 
territory,  where  sales  are  small,  from  growling  at 
the  advantage  shown  the  man  with  the  good  terri- 
tory— whose  commission  is  large — when  you  are  pay- 
ing them  both  a  bonus  in  the  form  of  a  commission 
on  sales?  An  incentive  that  really  is  any  incentive 
at  all,  must  affect  all  concerned.  Otherwise,  any  ad- 
vantage gained  will  be  offset  by  the  continual  dis- 
satisfaction of  those  who  feel  themselves  injured. 


366          EXECUTIVE  STATISTICAL  CONTROL 

One  dissatisfied  salesman  on  the  road  usually  costs  a 
firm  more  than  all  the  expenses  of  three  extravagant 
salesmen. 

Paying  Salesmen  According  to  Accomplishment.— 
Salesmen  should  be  paid  in  exact  proportion  to  what 
they  do  for  their  house.  The  immediate  dollar  in  the 
form  of  profits,  is  the  benefit  that  is  usually  most 
evident  to  every  member  of  the  firm  and  to  every 
stockholder.  Why  not  pay  the  salesman  directly  in 
proportion  to  the  effects  of  his  work  with  respect  to 
this  immediate  dollar?  This  method  is  being  used 
by  some  concerns  without  making  public  any  cost 
figures  or  otherwise  disclosing  business  secrets.  The 
far  sighted  firm,  as  a  matter  of  fact,  goes  further 
than  this. 

Emphasizing  Desirable  Qualities. — There  is  a  cer- 
tain large  wholesale  and  jobbing  concern  whose  ex- 
ecutives have  figured  out  the  exact  qualities  which, 
in  their  opinion,  constitute  the  ideal  make-up  of  a 
salesman.  Every  month  the  sales  manager  checks 
each  one  of  his  men  against  this  "inventory."  One 
man  may  be  90  per  cent  on  aggressiveness,  85  per 
cent  on  tact,  95  per  cent  on  ingenuity,  90  per  cent  on 
integrity,  and  so  on. 

These  percentages — some  ten  of  them — are  aver- 
aged, and  each  salesman's  average  is  posted  at  the 
end  of  the  month.  The  individual  ratings  that  each 
man  receives,  however,  are  known  only  to  himself. 
This  method  probably  prevents  embarrassment,  while 
the  posting  of  the  average  provides  the  incentive  that 
the  score  board  furnishes  to  the  participants  in  sport. 
The  sales  manager,  furthermore,  explains  to  every 


SALES  CONTROL  367 

man  exactly  the  reason  for  his  mark  on  each  quali- 
fication, and  does  his  best,  by  means  of  helpful  criti- 
cism, to  assist  all  the  salesmen  to  improve  their  aver- 
ages. The  result  is  that  every  man  knows  that  his 
good  points  as  well  as  his  bad  are  being  taken  into 
account,  and  that  he  is  not  being  judged  by  his  "gen- 
eral impression"  any  more  than  by  his  popularity. 

Making  Ideals  a  Goal. — This  particular  company 
also  drives  their  lessons  home  by  making  the  size  of 
each  salesman's  bonus  dependent  upon  how  nearly 
he  attains  the  ideals  set  by  the  firm. 

For  the  sake  of  the  illustration,  let  us  return  to  the 
case  of  the  man  who  sells  boxes.  During  the  month, 
let  us  say,  he  has  sold  1,000  boxes  at  $1.00  each. 
Under  the  ordinary  system,  granted  that  his  com- 
mission would  be  li/o  per  cent  on  his  sales,  he  would 
receive  $15.  Under  the  new  system,  he  would  be 
allowed  a  commission  of  2  per  cent  on  his  sales,  or 
$20,  multiplied  by  his  "sales-quality"  percentage, 
which,  we  shall  assume,  averaged  thus: 

Aggressiveness   90  per  cent 

Tact    85 

Ingenuity    95 

Integrity    90 

Integrity    90 

Total 450 

Average   90 

He  would  therefore  receive  90  per  cent  of  $20,  or 
$18,  as  his  bonus  for  the  month,  in  addition  to  his 
salary. 

It  will  be  noted  that  integrity  is  counted  twice. 
This  is  done  purposely,  in  this  particular  case,  to 


368 


EXECUTIVE  STATISTICAL  CONTROL 


IMPERIAL  MFG.  CO. 


INDIVIDUAL  SALESMEN'S  RECORD 


QUALITY 


UNE  JULY  AUG.  SEPT.  OCT     NOV.   DEC.  TOTAL     AVE 


AGGRESSIVENESS 


PERSEVERANCE 


370 


AVE.  FOR  MONTH 


FIG.  82.      HOW  THE  MANAGER  KEEPS  IN  TOUCH  WITH  HIS  MEN 

In  folders  like  this  the  sales  manager  collects  letters  to  and  from 

customers,  and  other  data  for  grading  salesmen.    At  the  end  of  each 

month  he  goes  over  with  each  salesman  the  material  in  that  man's 

folder,  and  discusses  plans  for  improvement. 

show  the  method  that  some  firms  adopt  in  order  to 
lay  particular  stress  upon  their  desire  for  some  spe- 
cial quality  in  the  salesman. 

As  a  result  of  using  this  system,  the  wholesale 
house  recently  mentioned  has  developed  one  of  the 
most  effective  groups  of  salesmen  in  the  country — 
and  of  exactly  the  type  needed  for  its  particular 
business.  These  salesmen  know  that  they  are  work- 
ing to  attain  certain  definite  and  practical  ideals,  and 
that  the  more  skilfully  they  get  in  line  with  these 


SALES  CONTROL  369 

ideals,  the  more  hard  cash  it  means  to  them  each 
month.  With  them  it  is  not  merely  a  matter  of 
avoiding  a  "call  down,"  once  or  twice  a  year,  for 
some  flagrant  offense  which  the  firm  cannot  overlook, 
but  which  they  stood  a  good  chance  of  "slipping 
over."  Each  man  knows  he  is  continually  under  ob- 
servation from  a  number  of  different  angles,  that 
nothing  will  be  passed  over,  and  that  he  will  be  re- 
warded exactly  in  proportion  to  the  value  to  the  com- 
pany of  his  accomplishments. 

The  system  has  been  in  use  for  over  six  years  now. 
The  firm  is  prospering,  and  is  sharing  its  prosperity 
with  those  men  in  its  employ  who  attain  its  stand- 
ards. It  has  the  pick  of  the  salesmen  in  its  territory, 
and  its  men  are  satisfied — they  are  getting  a  square 
deal  and  they  know  it. 

Amount  of  Sales  per  Territory. — Another  firm — 
manufacturing  building  materials  on  a  large  scale — 
has  set  standards  for  the  amount  of  sales  it  feels 
every  territory  should  yield.  The  man  covering  each 
territory  is  paid  a  bonus  which  varies  according  to 
the  degree  to  which  he  attains  the  standards.  These 
standards  are  based  upon  the  total  output  of  the  fac- 
tory, and  this  output  is  divided  among  the  various 
districts  in  proportion  to  the  average  sales  of  pre- 
vious years.  In  setting  these  standards,  however,  the 
sales  manager  takes  into  consideration  many  sales 
factors.  For  example,  if  a  certain  territory  had  been 
covered  for  a  year  by  a  poor  salesman,  he  would 
make  due  allowances.  His  intimate  knowledge  of 
trade  conditions  and  of  his  market  enables  him  to 
judge  intelligently.  Furthermore,  the  standards  are 


370         EXECUTIVE  STATISTICAL  CONTKOL 

set  for  a  definite  period,  and  are  subject  to  revision 
under  certain  prescribed  circumstances — for  instance, 
if  the  factory  should  be  expanded  beyond  its  present 
capacity. 

In  addition,  a  standard  is  set  for  selling  expenses. 
The  sales  manager,  after  going  over  past  records, 
consulting  his  own  experience,  and  conferring  with 
his  most  dependable  men,  determines  a  figure  which 
he  thinks  represents  the  proper  cost  per  unit  for  sell- 
ing his  various  products.  A  standard  selling  price 
is  also  established,  together  with  a  minimum  limit. 
This  price  is  based  upon  the  best  prices  obtained  in 
the  past  which  can  be  considered  as  fair  for  the 
period  over  which  the  standard  applies.  Each  man 
is  rewarded  according  to  how  nearly  he  attains  these 
standards. 

To  return,  now,  to  the  box  salesman  to  whom  I 
have  referred  before.  Suppose,  this  time,  that  the 
sales  standard  for  a  given  territory  has  been  set 
at  1,000  boxes  a  month,  and  that  the  sales  expense 
has  been  fixed  at  10  cents  a  box  and  the  selling  price 
at  $1.00  a  box.  Assume,  next,  that  the  salesman  sells 
for  the  month  950  boxes,  incurs  a  sales  expense  of  11 
cents  for  each  box,  and  obtains  a  price  of  $1.02  for 
each.  His  percentage  of  attainment,  with  respect  to 
the  standard  quantity,  is  then  95  per  cent;  the  stand- 
ard sales  expense,  90  per  cent;  and  the  standard  sell- 
ing price,  102  per  cent.  His  average  effectiveness  as 
a  salesman  for  the  period  is  therefore  95  per  cent, 
and  he  receives  for  his  month's  work — the  regular 
bonus  table  is  used — 20  per  cent  in  addition  to  his 
regular  salary  of,  say  $100  or  $120. 


SALES  CONTROL 


371 


This  bonus  table,  in  abridged  form,  is  this: 

71  per  cent  Efficient  0  per  cent  Bonus 

73 
76 
79 

82 
84 


87 
88 
89 
90 
91 
92 
93 
94 
95 
96 
97 
98 
99 
100 
105 


.  1 
.  2 
.  3 
.  4 
.  5 
.  6 
.  7 
.  8 
.  9 
.10 
.11 
.12 
.13 
.14 
.15 
.16 
.17 
.18 
.19 
.20 
.25 


In  this  particular  instance — for  I  refer  to  the  case 
of  an  actual  firm — the  system  has  been  working  for 
several  years,  and  is  giving  splendid  results.  The  fac- 
tory is  also  operated  under  scientific  management, 
and  it  is  sufficient  comment  upon  the  success  of  the 
entire  system  to  state  that  the  plant  ran  to  capacity 
during  1914,  which  was  an  exceedingly  bad  year  for 
concerns  of  this  particular  kind. 

Scientific  Method  of  Reward:  Department  Stores. 
• — The  method  of  the  scientifically  determined  reward 
varying  in  exact  proportion  to  the  effort  expended  in 
sales  work,  has  been  applied  even  in  the  case  of  de- 
partment stores.  It  has  been  a  practice  of  late  years 


372          EXECUTIVE  STATISTICAL  CONTROL 

among  many  department  stores,  to  conduct  schools 
for  salespeople,  at  considerable  expense.  Not  one 
store  in  ten,  however,  has  taken  what  is  obviously 
the  next  logical  step:  namely,  to  make  it  directly 
and  financially  worth  while  for  these  people  to  profit 
as  much  as  possible  from  the  course  of  study  that 
they  take.  A  few  stores,  it  is  true,  have  taken  the 
trouble  to  do  this,  and  to  pay  the  members  of  their 
sales  forces  not  only  in  proportion  to  individual  sales 
volumes,  but  also  in  proportion  to  their  observance 
of  certain  store  rules  and  their  grasp  of  the  training- 
school  teachings. 

These  stores  use  much  the  same  sort  of  system  that 
I  have  described  in  connection  with  the  wholesale 
and  jobbing  concern.  Standards  are  set  for  the  at- 
tainment of  such  accomplishments  as,  for  instance,  a 
commendable  degree  of  legibility  and  correctness  in 
writing  customers'  names  and  addresses  upon  sales 
slips;  incivility  to  a  customer  is  punished  with  a 
heavy  penalty.  The  floor  managers  give  to  the  vari- 
ous salespeople  certain  arbitrary  ratings  based  upon 
the  managers'  observation  of  the  employees  during 
the  month. 

This  system  has  been  applied  also  in  one  store's 
delivery  service.  Drivers  are  marked  for  the  follow- 
ing deficiences,  and  a  marked  improvement  has  been 
effected  in  delivery  service: 

1.  Failure  to  make  calls  for  merchandise  to  be 
returned. 

2.  Failure  to  make  deliveries,  even  when  the  ad- 
dress is  written  correctly. 


SALES  CONTROL  373 

3.  Failure  to  deliver  bulk  merchandise  to  the  rear 
doors  of  residences. 

4.  Discourtesy  (Counts  three  times). 

5.  Delaying  deliveries. 

6.  Breaking  or  damaging  goods. 

7.  Failure  to  provide  change  on  C.O.D.  deliveries. 

8.  Miscellaneous  shortcomings  not  covered  by  the 

above  stipulations. 

• 

The  firm  then  rewards  the  ten  men  scoring  the 
highest  for  the  month,  by  adding  $10  to  the  monthly 
wages  of  each. 

Individual  Methods  Vary. — A  scientific  method  of 
applying  a  bonus  system  of  rewarding  salesmen,  must 
be  worked  out  by  each  individual  concern.  There  is 
no  panacea  for  all  the  evils  that  usually  result  from 
unfair  methods  of  payment.  The  conditions  of  each 
case  must  be  studied,  in  order  that  the  best  method 
and  its  correct  application  may  be  determined.  The 
principle  is,  however,  in  all  cases  the  same;  reward 
in  exact  proportion  to  intelligence,  effort,  and  accom- 
plishment; a  fair  deal;  and  a  liberal  use  of  common 
sense. 

It  must  be  remembered  that  the  first  step  in  this 
connection,  as  in  the  operation  of  the  factory,  is  to 
collect  statistics.  The  general  manager  who  will 
analyze  his  business,  determine  which  sales  facts  are 
vital  and  which  are  superfluous,  and  then  insist  upon 
the  collection  of  such  facts,  will  after  a  year  or  two 
be  surprised  to  find  how  much  that  he  thought  was 


374         EXECUTIVE  STATISTICAL  CONTROL 

due  to  chance,  "hard  times/'  and  other  vague  causes, 
is  due  to  the  operation  of  definite  and  determinable 
laws  and  to  rank  inefficiency  on  the  part  of  tempera- 
mental salesmen.  After  that,  his  way  is  comparatively 
easy:  inefficiency  should  not  be  tolerated — discharge  is 
the  simplest  course;  careful  training,  the  wisest.  The 
so-called  temperamental  salesman  under  proper  coun- 
sel will  develop  surprising  capacity. 


CHAPTER  XX 
ADMINISTRATION  AND  FINANCE 

Charging  to  Costs  the  Interest  on  Investment. — 

Before  passing  to  the  consideration  of  the  methods 
by  which  the  executive  may  control  those  other  ex- 
penditures— and  incidentally  the  return  in  effort,  and 
so  in  results — expenditures  which,  together  with 
those  already  described,  constitute  the  total  cost  of 
operating  the  business,  I  wish  to  say  a  few  final 
words  in  regard  to  costs.  I  have  covered  the  statis- 
tical control  of  (1)  labor*  and  (2)  material;  the  dis- 
tribution of  (3)  charges  I  do  not  propose  to  discuss, 
since  the  subject  lies  properly  within  the  province  of 
the  volume  on  costs.** 

There  is  still  considerable  discussion  of  the  ques- 
tion of  charging  to  the  cost  of  production  interest  on 
the  appraised  valuation  of  the  property,  in  order  to 
make  certain  that  prices  will  be  set  sufficiently  high 
to  insure  a  return  on  invested  capital  equal  to  what 
it  would  bring  if  invested  in  gilt-edged  securities 
(C-D-4  etc.).  Those  at  the  head  of  large  corporations 
do  not  take  kindly  to  this  idea  at  first,  because  it 
seems  as  if  such  a  course  would  at  once  raise  the  cost 

*  See  Classification  of  Accounts,  Chapter  V. 
**  See  "Industrial  Cost  Finding,"  N.  T.  Picker,  Vol.  5,    Factory 
Management  Course. 

375 


376          EXECUTIVE  STATISTICAL  CONTROL 

of  production  and  reduce  the  net  profits.  Since  the 
continuance  in  office  of  these  executives  is  in  many 
cases  dependent  upon  the  showing  they  can  make  in 
the  way  of  earnings,  they  feel  that  it  would  be  suicidal 
to  encourage  a  scheme  which  at  first  seems  to  lop  off 
a  sum  sufficient  to  pay  a  five  or  six  per  cent  dividend. 
It  is  perhaps  true  that  the  plan  calls  undue  attention 
to  over-capitalization  and  to  the  unequal  earning 
power  of  different  plants  and  properties  belonging 
to  a  company.  But  after  all,  a  knowledge  of  these 
points  is  a  very  good  stimulus  to  the  executive  in 
most  cases,  as  I  shall  show  later.  The  principal  value 
of  charging  to  the  costs  interest  upon  the  investment, 
lies  in  the  completeness  and  exactness  with  which, 
under  such  a  system,  each  department  is  charged 
with  its  share  of  the  total  investment.  There  is  no 
reason  why  this  interest,  having  been  charged  as  de- 
scribed, month  by  month,  should  not  be  subtracted 
from  the  cost  of  production  in  a  lump  sum  before  the 
production  cost  is  subtracted  from  the  sales  cost  in 
the  monthly  statement  that  shows  the  company's 
profit  or  loss  for  the  period.  The  executive's  show- 
ing will  be  quite  as  good  under  such  circumstances 
as  when  old-fashioned  methods  are  employed.  Should 
he  feel,  however,  that  an  accounting  method  of  this 
kind  would  not  be  understood  by  his  directors,  an- 
other method,  somewhat  less  exact,  may  be  adopted. 
Another  Accounting  Method. — The  following  tabu- 
lation shows  a  business  consisting  of  three  factories, 
two  mines,  the  necessary  hotel  and  store,  and  a  real 
estate  company  formed  for  the  purpose  of  segregat- 
ing more  or  less  non-productive  lands.  These '  lands 


ADMINISTRATION  AND  FINANCE 


377 


JANUARY  INVESTMENT  RETURN 

Property 

Investment 

Monthly 
Profit 

Annual 
% 
Rate 

Monthly 
Loss 

Annual 

& 

Monthly 
Net 
Profit 

Annual 
Ra°te 

Factory  No.  1 

$   500,000 

$  4,160 

10 

Factory  No.  2 

250,000 

$4,160 

20 

Factory  No.  3 
Coal  Mine 
No.  1  
Coal  Mine 
No.  2  

2,000,000 
120,000 
1,000,000 

8,330 
1,000 

5 
10 

2,500 

3 

Hotel  

25,000 

208 

10 

Store  
Real  Estate 
Co  

50,000 
350,000 

83 

2 

875 

3 

Total  

$4,295,000 

$13,573 

$7,743 

$5,830 

1.6 

the  company  bought  at  various  times  in  the  past  as 
possible  factory  property,  or  in  order  to  secure  min- 
eral rights.  It  hopes  to  dispose  of  them  eventually 
at  a  profit,  and  meantime  does  not  feel  like  carrying 
as  them  dead  weight  balanced  against  the  earnings 
of  its  actively  productive  properties. 

The  company's  investment  amounts  to  $4,295,000. 
The  total  net  earnings  for  January  amount  to  $5,830, 
which  is  at  the  rate  of  1.6  per  cent  a  year.  The  tabu- 
lation shows  just  which  portions  of  the  property  were 
productive  in  terms  of  annual  dividends  upon  the 
capital  invested.  Under  the  circumstances,  the  at- 
tention of  the  executive  cannot  but  be  focused  upon 
the  properties  that  are  dragging  down  the  net 
profits.  This  information  is  entered  upon  a  chart, 


378          EXECUTIVE  STATISTICAL  CONTROL 

which  shows  him  just  how  well  or  how  poorly  each 
division  of  the  company's  investment  is  doing  each 
month.  The  chart  illustrated,  Figure  83,  shows  each 
property  as  of  equal  importance.  Strictly  speaking, 
however,  that  is  not  the  case.  The  method  of  chart- 
ing net  earnings  was  shown  in  an  earlier  chapter. 
This  chart  is  designed  to  bring  home  to  the  manage- 
ment each  month  the  fact  that  each  property  should 
be  regarded  as  a  separate  entity,  and  as  such  should 
earn  dividends. 

Incidentally,  a  heated  argument  is  raging  at  pres- 
ent as  to  the  valuation  which  should  properly  be 
selected  as  a  basis  for  computing  earnings.  In  other 
words,  the  question  is  whether  a  company  should  re- 
gard as  its  true  capital  the  assessed  valuation  of  the 
property — the  amount  actually  invested  by  stock- 
holders— or  the  amount  actually  invested,  plus  all 
the  stock  dividends  paid  in  past  years,  in  terms  of 
stock  outstanding,  plus  treasury  stock.  I  shall  not 
attempt  to  settle  this  controversy.  I  do  believe, 
however,  that  every  executive  should  at  least  once  a 
year  retire  into  his  private  office,  double-lock  the 
doors  if  necessary,  squeeze  all  the  water  out  of  the 
capitalization  of  his  company,  and  look  the  facts 
honestly  in  the  face.  This  procedure  will  not  be 
pleasant,  perhaps,  but  the  company  will  benefit  by  it 
in  the  long  run. 

General  Charges. — I  discussed  in  the  preceding 
chapter  methods  of  controlling  sales  charges.  There 
remain  for  treatment,  therefore,  only  (4)  Administra- 
tion and  (6)  General  Charges.  In  regard  to  the  lat- 
ter we  can  only  say  that  the  less  charged  under 


ADMINISTRATION  AND  FINANCE 


379 


S   g 


JULY 


AUG. 


SEPT. 


OCT. 


FIG.   83.      CHART  SHOWING  RETURN   ON   INVESTMENT 


380          EXECUTIVE  STATISTICAL  CONTROL 

"general"  heads,  the  better.  Such  charges  are  the 
delight  of  the  accountant  too  lazy  to  think  out  the 
proper  distribution  of  a  charge,  and  they  are  the 
lurking  places  of  dishonesty  and  inefficiency.  The 
salesman  who  wishes  to  pad  his  expense  account 
revels  in  charging  to  "Incidentals"  or  "General." 
The  foreman  who  is  carrying  two  or  three  extra 
names  on  the  payroll,  and  adding  the  wages  of  ficti- 
tious workers  to  his  salary,  ascribes  their  imaginary 
activities  to  "general  work."  When  it  comes  to 
the  charges  compiled  under  the  direction  of  the  com- 
pany's auditor,  the  less  opportunity  offered  for  dis- 
honesty by  providing  such  catch-alls  the  better,  if 
the  executive  desires  to  feel  sure  at  all  times  that  the 
expenditures  for  which  he  is  responsible  are  being 
made  honorably  and  efficiently. 

Administration  Charges. — Administration  expense 
should  be  regarded  in  much  the  same  light.  There 
are  always  certain  charges  which  cannot  be  distri- 
buted accurately.  A  fairly  safe  rule  is:  Reduce  such 
charges  to  a  minimum,  and  chart  them  proportionally 
against  operation  and  against  sales  in  the  form  of  a 
percentage  of  net  sales  and  of  cost  of  operation.  A 
chart  keeps  these  charges  before  the  executive  in 
such  form  that  he  realizes  very  quickly  the  necessity 
for  strenuous  exertion  or  for  retrenchment  when 
business  falls  off.  (See  Figure  84.) 

In  using  such  a  chart,  the  executive  must  take  care 
not  to  fall  into  the  fallacy  of  the  country-town 
banker,  and  argue  that  increase  in  the  ratio  of  over- 
head to  productive  expense  necessarily  spells  disas- 
ter. If  that  were  true,  the  Tabor  Manufacturing 


ADMINISTRATION  AND  FINANCE 


381 


FIG.   84.      PERCENTAGE  OF  ADMINISTRATIVE  EXPENSE   TO   COST   OF 
OPERATION,  ABOVE,  AND  TO  NET  SALES,  BELOW 


382         EXECUTIVE  STATISTICAL  CONTROL 

Company  would  be  ranked  as  one  of  the  most  ineffi- 
cient, instead  of  one  of  the  most  efficient,  concerns 
in  the  country  and  Scientific  Management  would  be 
classed  as  a  rank  failure.  The  chart  must  be  viewed 
in  the  light  of  its  context;  in  this  case,  the  context 
consists  of  the  charts  showing  the  efficiency  of  oper- 
ation of  both  factory  and  sales  department. 

The  Investment  Phase.— One  phase  of  finance  is 
usually  taught  the  executive  by  his  banker  and  by 
his  attorney.  Upon  his  accession  to  power,  he  very 
soon  finds  that  there  are  certain  things  which  he  may 
do,  and  certain  things  which  he  must  not  do.  The 
method  of  financing  rests  largely  with  the  executive's 
two  advisers,  but  he  alone  can  determine  how  much 
money  he  needs,  and  when  he  will  be  likely  to  need 
it.  A  few  years  ago  coal  dealers  worked  themselves 
and  their  equipment  hard  all  winter,  and  did  little  or 
nothing  all  summer.  Interest  on  idle  equipment  and 
unearned  salaries  during  the  summer,  ate  up  most  of 
the  profits  made  during  the  winter.  Artificial  ice- 
makinig  later  became  a  commercial  possibility,  and 
now  there  are  scores  of  concerns  that  use  their  offices 
and  equipment  to  sell  ice  in  summer  and  coal  in 
winter.  For  similar  reasons  of  economy,  some  firms 
•sell  ice  cream  in  summer  and  oysters  in  winter.  The 
ice-skating  rink  that  flourishes  on  top  of  the  big 
hotel  in  winter,  becomes  a  roof  garden  in  summer. 
I  know  of  one  instance  in  which  the  building  that  con- 
tained a  swimming  pool  in  the  summer  was  turned  into 
a  moving  picture  theatre  every  winter.  Irrespec- 
tive of  the  form  which  this  kind  of  phenomenon  as- 
sumes, the  cause  is  the  same — an  effort  to  simplify 


ADMINISTRATION  AND  FINANCE  383 

the  matter  of  financing,  and  so  add  to  the  profits  of 
the  house. 

In  many  cases,  the  very  life  of  the  business  de- 
pends upon  the  care  with  which  the  method  of 
finance  is  studied  before  the  business  is  launched.  A 
friend  of  mine  who  had  a  fixed  income  used  to  con- 
sider carefully  the  amounts  and  "dates  due"  of  all 
his  various  real-estate  and  other  payments,  before 
taking  out  a  life-insurance  policy  or  incurring  any 
other  obligations.  Otherwise,  he  might  have  been 
seriously  embarrassed  at  times  by  having  all  his  pay- 
ments come  due  at  once.  Investors  must  keep  accur- 
ate record  of  the  time  when  their  various  notes  will 
become  due,  when  coupons  are  to  be  clipped,  and  of 
all  the  items  of  income  and  outgo,  if  they  are  to  keep 
their  funds  working  for  them  at  all  times  so  as  to 
secure  the  maximum  income. 

Too  many  corporation  executives  regard  the  invest- 
ment side  of  their  business  of  so  little  importance  as 
to  require  no  consideration  beyond  merely  seeing  that 
there  is  sufficient  money  in  the  bank  to  pay  wages 
and  salaries  and  the  current  bills.  One  man  I  knew 
used  to  keep  from  fifty  to  eighty  thousand  dollars  in 
the  bank  all  the  time.  He  had  bills  the  payment  of 
which  he  put  off  for  so  long  that  eventually  his 
credit  became  impaired  enough  to  cause  him  serious 
financial  embarrassment.  He  was  careful  to  discount 
all  bills  not  marked  "net";  but  the  interest  on  the 
money  that  he  kept  in  his  drawing  account,  if  he  had 
paid  all  his  bills  and  invested  the  surplus,  would 
have  amounted  to  enough  to  equal  a  cash  discount 
on  all  net  bills. 


384         EXECUTIVE  STATISTICAL  CONTROL 

Outside  Securities. — Those  who  control  the  finances 
of  a  corporation  would  usually  do  well  to  consider 
the  investment  of  a  certain  percentage  of  their  profits 
in  outside  securities.  In  times  of  crisis,  a  sinking 
fund  of  this  sort  may  save  the  business.  As  industry 
exists  in  America,  it  very  often  happens  that  busi- 
ness is  exceedingly  slack  in  one  line,  while  at  the 
same  time  it  is  active  and  profitable  in  another.  In- 
.  surance  companies,  universities,  and  savings  banks 
never  tie  up  all  their  capital  in  one  class  of  investments. 

The  Danger  of  Over-Expansion. — Why  should  not 
manufacturers,  by  taking  the  same  precaution,  simi- 
larly insure  themselves  income  enough  to  carry  them 
safely  through  the  lean  periods,  instead  of  driving 
"full  steam"  ahead  all  the  time,  sinking  in  expan- 
sion every  cent  they  can  make,  regardless  of  whether 
or  not  the  market  really  exists  for  the  amount  of 
product  they  propose  to  dump  on  the  public?  Indus- 
trial over-expansion  has  been  the  curse  of  the  country 
— it  has  led  to  cut-throat  competition  and  to  the  wast- 
ing of  an  endless  amount  of  capital.  Let  the  conscien- 
tious executive  occasionally  lay  aside  his  pride  in  the 
business  and  his  optimism  long  enough  to  consider  at 
least  the  population  of  the  district  that  freight  rates 
will  allow  him  to  reach.  Let  him  do  some  figuring 
upon  the  probable  per  capita  absorptive  power  of  his 
market,  and  then  resist  "tooth  and  nail"  expansion 
beyond  the  limits  of  an  output  that  can  be  sold  at  a 
profit.  We  have  had  too  much  megalomania  in 
America — too  much  big  idea — too  much  dreaming  of 
ourselves  as  the  biggest  men  in  the  biggest  building 
in  the  biggest  city,  running  the  biggest  business. 


ADMINISTRATION  AND  FINANCE  385 

Let  us  strive  rather  to  have  the  best-run  business  in 
the  best  city.  Let  us  cease  to  spread  ourselves  out 
so  thin — and  make  quality  our  slogan  rather  than 
quantity. 

Distributing  Dividends  Evenly. — I  have  spoken, 
in  a  previous  chapter,  of  the  danger  of  accustoming 
stockholders  to  larger  dividends  for  a  year  or  two 
than  the  business  may  reasonably  be  expected  to  pay 
continuously.  To  do  so  is  unfair  to  the  business  and 
to  the  stockholders,  for  such  periods  of  artificial 
plenty  are  bound  to  be  followed  by  lean  periods 
which  can  only  jeopardize  the  market  value  of  the 
company's  securities  and  hamper  the  business  when 
it  comes  to  financing.  When  a  concern  pays  twenty 
or  thirty  per  cent  for  two  or  three  years,  and  then 
passes  dividends,  bankers  and  investors  alike  sus- 
pect the  worst.  This  lack  of  public  confidence 
renders  it  impossible  for  a  stockholder  to  dispose  of 
his  stock,  and  makes  the  bank  chary  about  advanc- 
ing funds  to  the  corporation,  even  for  legitimate 
purposes.  The  largest  and  most  conservatively  man- 
aged corporations,  recognizing  this  fact,  usually  limit 
their  dividends  sufficiently  during  the  periods  of 
large  earnings  to  enable  them  to  continue  reasonable 
dividends  throughout  periods  when  earnings  are 
small.  As  a  result,  their  securities  normally  have  B 
steadier  market  value,  and  both  corporation  and 
stockholders  are  saved  from  possible  financial  em- 
barrassment. 

Predicting  Income  and  Operating  Expenses. — The 
accompanying  chart,  Figure  85,  illustrates  an  ap- 
proved method  of  determining  the  extent  to  which 


386         EXECUTIVE  STATISTICAL  CONTROL 

a  business  should  be  expected  to  require  financing 
during  the  year.  The  business  represented  is  typical 
of  a  number  that  have  seasonal  fluctuations. 

Briefly,  it  is  assumed  that  the  income  from  sales  is 
large  during  the  winter  months,  and  that  it  falls  off 
during  the  summer.  Nevertheless,  in  order  to  keep 
the  organization  intact,  it  is  necessary  to  manu- 
facture to  a  certain  extent  during  the  slack  summer 
months.  It  is  assumed,  for  the  sake  of  simplicity, 
that  expenditures  may  be  classified  under  the  fol- 
lowing heads:  Payroll  (A),  Material  (B),  Quarterly 
Dividends  on  Common  Stock  (C),  Semi-annual  Divi- 
dend on  Preferred  Stock  (D),  and  Bonds  Maturing 
in  October  (E).  The  sum  of  all  these  determined 
and  estimated  expenditures,  is  shown  by  the  line 
marked  "Operating  Expenses  and  Obligations"  (F). 
The  sum  of  the  items  A  to  E,  inclusive,  is  found 
mechanically  each  month  by  measuring  off  on  the 
monthly  vertical,  with  a  pair  of  dividers,  the  dis- 
tance that  each  unit  of  expenditure  occupies. 

The  distance  then  between  line  G,  Income  from 
Sales,  and  line  F,  represents  the  surplus  or  the  defi- 
cit each  month,  granted  that  there  were  no  funds 
in  the  bank  January  1st.  It  will  be  noted  that  the 
business  in  question  had  a  bank  balance  until  July, 
when  it  became  necessary  to  borrow  $5000.  More 
and  more  money  was  borrowed  until  August,  when 
obligations  amounted  to  $45,000.  From  August  on, 
notes  were  taken  up  until  November,  when  the  com- 
pany had  a  surplus  of  $20,000  in  the  bank.  By  De- 
cember this  amount  had  increased  to  $70,000,  a  figure 
which  shows  that  the  Company  had  met  all  obliga- 


ADMINISTRATION  AND  FINANCE 


387 


n      uf 


FIG.  85.      CHART  FOR  ESTIMATING  FINANCIAL  REQUIREMENTS 


388          EXECUTIVE  STATISTICAL  CONTROL 

tions  and  had  acquired  a  surplus  equal  to  that 
amount. 

Study  of  Past  Records.— If  the  probable  income 
and  operating  expenses  are  to  be  predicted  a  year 
ahead,  records  of  past  years  must  be  studied  care- 
fully and  intelligently.  There  is  nothing  particu- 
larly revolutionary  in  such  a  plan.  Similar  methods 
have  been  used  by  the  British  Government  and  by 
the  governments  of  other  countries  for  years,  under 
the  name  of  the  "budget  system." 

In  regard  to  the  budget  system  which  he  had  de- 
vised, the  treasurer  of  the  largest  company  in  its  line 
in  the  world  wrote  me  as  follows: 

The  budget,  or  task  system  has  given  us  considerable  trouble 
this  year,  owing  to  the  abnormalities  in  business.  However, 
it  did  one  thing  that  probably  has  never  been  done  in  the 
history  of  business  before — namely,  it  brought  us  up  with  a 
jerk  after  the  first  six  months  were  over,  face  to  face  with 
conditions  that  were  so  far  different  from  those  which  had 
been  anticipated  that  we  were  able  to  develop  new  plans  im- 
mediately for  the  balance  of  the  year  which  would  make  it 
possible  to  make  our  budget  good. 

I  am  pleased  beyond  measure  with  the  seriousness  with 
which  our  budget  calculations  are  regarded  by  the  various 
executives  who  are  and  should  be  interested.  Perhaps  the 
real  factor  responsible  for  making  our  budgets  something  to 
be  studied,  is  the  fact  that  in  addition  to  explaining  the  dif- 
ferences up  or  down,  we  have  also  been  able  to  point  in  de- 
tail to  the  concrete  reasons  for  these  differences,  and  in  some 
instances  they  were  a  surprise  to  the  department  heads  them- 
selves. 

Charting  Actual  Income  and  Expenditure. — It  is 
a  very  good  plan  to  chart  the  actual  as  well  as  the 
anticipated  expenditure  and  income,  since  the  chart 
will  show  exactly  how  accurately  performance  paral- 


ADMINISTRATION  AND  FINANCE  389 

lels  prediction  each  month,  and  will  render  read- 
justment possible  every  month.  One  man  I  know, 
who  is  the  head  of  a  very  large  corporation,  takes 
such  a  chart  to  his  bank  whenever  he  feels  it  wise 
to  outline  his  probable  future  needs,  and  uses  it  as 
a  basis  for  his  discussions.  He  arranges  for  his 
loans  in  a  manner  which  has  been  the  admiration  of 
all  the  other  officers  of  the  institution.  If  every  cor- 
poration head  would  do  likewise,  the  problems  of  our 
financial  institutions  would  be  immensely  simplified, 
much  unwise  expenditure  would  be  prevented,  and 
undoubtedly  in  some  cases  financial  disaster  would 
be  averted. 

Not  Too  Many  Charts. — There  are  many  other 
conditions  that  may  be  charted  to  advantage.  In 
some  kinds  of  business  it  is  very  well  worth  while 
to  show  every  month,  or  even  every  week,  the  bills 
payable  and  the  bills  receivable.  A  chart  showing 
the  age  and  the  total  amount  of  the  bills  receivable 
is  a  spur  to  the  collection  department.  Countless 
charts  of  a  similar  nature  may  be  devised.  In  fact, 
once  the  personnel  of  an  organization  has  been  thor- 
oughly imbued  with  the  idea  of  presenting  facts 
graphically,  the  greatest  danger  is  that  so  much  time 
will  be  spent  by  various  executives  devising  graphs, 
that  their  regular  work  will  suffer.  Never  should 
more  charts  be  devised  than  can  be  made  to  "earn 
their  keep.*' 

Production  Costs.— Before  taking  leave  of  the 
graphic  method  of  executive  control,  I  wish  to  say 
a  final  word  regarding  production  costs  as  such. 
Under  normal  conditions  of  operation,  if  costs  are 


390         EXECUTIVE  STATISTICAL  CONTROL 

properly  compiled  with  due  regard  for  their  value  as 
a  means  of  controlling  the  efficiency  of  the  business, 
those  costs  alone  are  sufficient  guide  to  the  execu- 
tive when  he  is  deciding  matters  of  policy.  Under 
abnormal  conditions — during  such  a  period  as  that 
of  the  great  European  war — with  wages  jumping  as 
much  as  ten  per  cent  a  month  in  some  sections,  and 
with  the  prices  of  materials  advancing  by  leaps  and 
bounds,  usually  a  lap  or  two  ahead  of  the  wage 
raises  —  under  such  conditions,  the  value  of  costs 
for  purposes  of  comparison,  for  setting  one  month 
against  another,  is  lessened  considerably.  This  state- 
ment is  perhaps  best  illustrated  by  the  two  accom- 
panying charts,  Figures  86  and  87. 

These  charts  show  what  was  actually  accomplished 
through  the  introduction  of  scientific  industrial  effi- 
ciency in  two  plants,  as  compared  with  what  the  costs 
showed  had  been  accomplished.  While  the  saving 
is  material,  even  when  the  costs  are  accepted  at  their 
face  value,  the  economies  effected  are  much  greater 
when  allowance  is  made  for  the  war-time  rise  in  the 
cost  of  labor  and  material.  I  therefore  advise  the 
executive  who  would  measure  the  true  efficiency  of 
his  business  at  all  times,  to  arrange  for  various 
checks  of  an  exact  nature — standards  which  will  not 
vary — such  as  the  man-hours  required  to  perform 
certain  operations,  and  the  number  of  men  required 
to  operate  the  various  machines  or  to  produce  a 
certain  output  under  standard  conditions.  Stand- 
ards of  this  sort  will  not  change  with  the  wage  rate. 
Similar  standards  of  measure  for  material  may  be 
set,  and  the  complete  record  that  these  give  will  en- 


10.00 


8.00 


-Cost  Discc    

for  Rise  m  La  bar  and 
.Material. 


5  s 


FIG.   86.      CHART  SHOWING   ACTUAL  ECONOMY  EFFECTED  BY  IN- 
TRODUCTION OF  SCIENTIFIC  MANAGEMENT  AS  AGAINST  THE 
ECONOMY  SHOWN  BY  COST  FIGURES 


392 


EXECUTIVE  STATISTICAL  CONTROL 


*>. 

1450 
IJ.OO 

i 

g  12.00 
o 

a 

£  11.00 
1- 

8 

JO.OO 

9.00 
9.00 

8.00 

/ 

i 

/ 

\ 

IMPCRIAL 

MANU 
Co. 

WY   A 

CACTU 

0.2 

vm 

y 

\ 

fAcn 

/ 

\ 

/ 

\ 

/ 

\ 

/ 

\ 

Cost_per 

y 

\ 

/ 

\ 

\ 

\ 

\ 

\ 

I 

\ 

/ 

\ 

I 

\ 

/ 

X 

\ 

/ 

^ 

t 

\ 

1 

\1 

\ 

1 

4 

' 

1 

1 

/ 

4 

/ 

^ 

\ 

/ 

\ 

/ 

Hg!<          PREVIOUS  YEAR            01 

i  °~1    =  s  I  § 

RREMT  YEAR 

FIG.  87.      ANOTHER  INSTANCE  OP  COSTS  SHOWING  FALSELY  THE 
ECONOMIES  EFFECTED  BY  SCIENTIFIC  MANAGEMENT 


ADMINISTRATION  AND  FINANCE  393 

able  the  executive  to  estimate  very  closely  just  how 
much  rising  costs  must  be  discounted  to  restore  to 
them  their  comparative  value,  which  is  so  import- 
ant if  every  department  is  to  be  continuously  operated 
at  the  highest  possible  effectiveness. 


CHAPTER  XXI 

SCIENTIFIC  MANAGEMENT  FOE  THE  FACTORY 
OF  MODERATE  SIZE* 

The  Usual  Type  of  Manager.— The  factory  em- 
ploying from  a  hundred  to  three  hundred  men  is  fre- 
quently owned  by  a  single  individual,  or,  if  the  com- 
pany is  incorporated,  the  management  is  dominated 
by  the  heaviest  stockholder  to  such  an  extent  that 
the  result  is  the  same.  This  man  may  not  be  actively 
engaged  in  the  business  of  manufacture — quite  fre- 
quently is  not — but  nevertheless  his  influence  is 
strongly  felt  in  matters  touching  the  general  busi- 
ness policy,  the  expenditures,  and  innovations  of  any 
sort. 

The  manager  of  the  business,  who  may  or  may  not 
have  had  manufacturing  experience,  is  often  the  sales 
manager — in  fact,  if  not  in  name — and  presides  over 
the  general  office  of  the  company.  He  is  looked  to  for 
results,  but  must  keep  well  within  the  limits  of  the 
company's  policy  as  laid  down  according  to  the  doc- 
trines of  the  dominant  stockholder.  Heresy  of  any 
kind  on  his  part  is  likely  to  result  in  personal  dis- 
aster. 


*  This  account  has  to  do  with  my  personal  experience  as  a  fac- 
tory executive  in  introducing  some  of  the  methods  described  in  the 
foregoing  pages  into  factories  of  which  I  was  superintendent.  This 
article  appeared  in  "The  Engineering  Magazine,"  and  I  suhmit  it 
here  with  the  idea  that  it  may  prove  helpful  to  men  who  are  in  situ- 
ations similar  to  those  in  which  I  was  placed. 


THE  MODERATE-SIZED  FACTORY          395 

One  of  the  most  firmly  established  tenets  in  the 
creed  of  the  successful  business  man  is  that  it  is 
essential  to  insist  upon  the  utter  extermination  of  un- 
productive labor.  No  one  will  dispute  the  soundness 
of  that  reasoning,  provided  the  labor  so  designated 
assists  in  no  way  whatever  the  process  of  manu- 
facture. Too  often,  however,  since  the  man  whose 
brain  only  is  active  differs  not  greatly  in  appear- 
ance from  the  man  who  is  loafing,  the  fact  that  an 
employee  is  neither  rushing  about  nor  actively  en- 
gaged in  manual  labor  causes  him  to  be  condemned  as 
useless,  and  his  services  are  dispensed  with.  The 
man  who  invests  heavily  in  the  stock  of  the  com- 
pany very  often  knows  a  good  deal  about  book- 
keeping, and  since  he  visits  the  factory  to  better  it, 
he  will  readily  criticise  any  apparent  excess  of  men 
in  this  department,  while  fear  of  showing  his  ignor- 
ance would  cause  him  to  hesitate  a  long  time  before 
expressing  an  adverse  opinion  concerning  the  num- 
ber of  men  actually  engaged  in  the  work  of  manu- 
facture. The  manager  and  the  superintendent  must 
please  their  superior,  and  so  are  extremely  loth  to 
sanction  in  any  way  an  increase  in  "apparently  un- 
productive labor."  When  lack  of  profits  force  re- 
trenchment, the  clerical  force  is  always  the  first  to 
be  attacked,  and  the  efficiency  of  the  executive  is 
often  badly  impaired  by  the  consequent  lack  of  neces- 
sary figures.  Even  some  very  successful  business  men 
go  so  far  as  to  view  with  great  alarm  the  acquisition 
of  anything  in  the  nature  of  office  furniture  by  a 
superintendent,  fearing  that  he  may  be  tempted  to 
loll  in  idleness  when  he  ought  to  be  rushing  about 


396  EXECUTIVE  STATISTICAL  CONTROL 

among  his  men.  They  feel  that  they  are  getting  their 
money's  worth  when  he  is  wearing  out  shoe  leather, 
which  he  pays  for,  but  they  are  not  so  sure  of  it 
when  he  is  sitting  at  a  desk  working  his  brains  and 
using  paper  and  pencil,  which  they  pay  for.  This 
may  seem  to  be  an  exaggeration,  but  nevertheless  the 
two  commonest  criticisms  applied  to  managers  and 
superintendents  are,  "The  business  is  too  top  heavy," 
and  "He  has  too  many  men  standing  around." 

Difficulties  of  Introducing  Scientific  Management. — 
Human  nature  being  what  it  is,  and  the  successful 
owner  having  pretty  definite  ideas  as  to  who  is  re- 
sponsible for  his  success  and  as  to  just  how  it  is  ob- 
tained, what  chance  has  the  efficiency  engineer  of 
foisting  upon  the  average  small  business  the  para- 
phernalia of  Staff  and  Line,  Kouting,  Dispatching, 
and  Time-Study,  with  their  Chief  of  Staff,  Super- 
visors of  Study,  of  Planning,  of  Standards,  of  Bonus, 
of  Analysis,  and  so  on,  together  with  each  one's 
clerks,  messengers,  and  other  assistants'?  The  result 
of  such  an  attempt  would  be  too  awful  to  contem- 
plate. How  then  is  the  small  or  medium-sized  enter- 
prise to  obtain  the  benefits  which  can  unquestionably 
be  obtained  by  the  introduction  of  the  principles  of 
Scientific  Management? 

Evolution  of  the  Superintendent  (Staff)— Assistant 
Superintendent  (Line)  Idea. — In  1906  I  was  placed 
in  charge  of  a  factory  in  the  Far  West  which  em- 
ployed a  hundred  men.  The  plant  was  in  a  chaotic 
condition,  having  just  passed  through  an  interregnum 
under  a  foreman,  after  a  year  under  a  superintendent 
whose  troubles  had  driven  him  to  drink.  The  old- 


THE  MODERATE-SIZED  FACTORY  397 

timers  in  charge  of  various  departments  were  at  war 
with  each  other;  each'  had  designs  upon  the  super- 
intendency,  and  all  looked  upon  a  college  graduate  as 
some  sort  of  animal  designed  rather  to  amuse  than  to 
alarm.  As  a  result,  I  spent  the  first  few  weeks  in 
rushing  about  from  one  department  to  another,  try- 
ing to  get  each  one  patched  up  to  run  long  enough  so 
that  the  factory  could  be  operated  as  a  whole.  When 
this  had  been  accomplished  the  factory  was  limping 
to  such  an  extent  that  it  was  realized  that  each  de- 
partment and  each  material  would  have  to  be  ana- 
lyzed and  great  improvements  made  before  anything 
like  efficient  operation  could  be  looked  for.  Mean- 
time the  factory  had  to  be  run,  and  it  took  all  of  one 
man's  time  to  straighten  out  the  snarls  arising  in 
each  department  and  keep  the  product  coming.  This 
forced  me  to  recognize  the  following  principle: 

The  factory  should  be  so  organized  that  it  will  run  itself, 
leaving  the  superintendent  free  to  throw  his  strength  to  the 
aid  of  the  weakest  department. 

Application  of  the  Principle. — This  idea  was 
worked  out  in  practice  by  gradually  evolving  from 
the  most  promising  material  at  hand  a  line  organiza- 
tion under  an  assistant  superintendent.  This  organi- 
zation handled  all  the  routine  operations  of  manu- 
facture, leaving  the  superintendent  free  to  meet  any 
emergency  of  an  extraordinary  nature  and  to  do  ana- 
lytical and  research  work — made  him,  in  a  measure, 
chief  of  staff.  It  seemed  logical  that  the  highest-sal- 
aried official  about  the  plant  should  be  best  able  to 
study  and  improve  the  various  operations,  and  the  op- 
portunity to  do  this  was  secured.  When  necessary 


398  EXECUTIVE  STATISTICAL  CONTROL 

assistants  were  detailed  from  the  different  depart- 
ments, and  the  scope  of  certain  foremen  who  were 
expert  in  certain  operations  was  extended  to  cover 
other  departments,  so  far  as  these  operations  were 
concerned.  The  course  of  the  product  through  the 
factory  was  studied  and  changes  made  which  facili- 
tated its  movement.  The  assistant  superintendent 
made  the  dispatching  one  of  his  duties,  and  a  suffi- 
cient supply  of  raw  and  semi-manufactured  material 
was  assured  each  department.  Processes  were 
studied  and  unnecessary  labor  eliminated.  All  fin- 
ished products  not  strictly  first-quality  were  classi- 
fied according  to  their  defects  and  the  causes  re- 
moved so  far  as  possible.  The  written  instruction 
card  was  adopted  for  the  most  important  operations 
after  a  thorough  analysis  and  determination  of  the 
best  method  by  a  process  of  elimination.  Outside 
expert  assistance  was  called  in  when  necessary;  other 
plants  were  visited,  and  the  experience  of  the  best 
workmen  made  available.  Machines  were  improved, 
and  in  some  cases  new  varieties  were  substituted. 
This  type  of  staff  organization,  as  will  be  seen,  per- 
mits the  careful  investigation  of  various  problems, 
but  at  the  same  time,  on  account  of  its  great  flexi- 
bility, its  expense  is  no  greater  than  the  occasion  de- 
mands. 

Results  as  to  Fuel. — As  the  system  began  to  oper- 
ate more  smoothly,  the  results  were  evident.  Fuels 
were  investigated,  and  a  more  efficient  type  of  fur- 
nace reduced  power  costs.  By  the  use  of  indicator 
diagrams  power  was  increased  and  steam  consump- 
tion decreased.  Gauges  recorded  the  conscientious 


THE  MODERATE-SIZED  FACTORY  399 

performance  of  the  duties  of  the  night  crew.  Shut- 
downs on  the  more  important  machines  were  dimin- 
ished when  recording  gauges  were  installed  which 
showed  their  duration  and  frequency.  Technical  con- 
trol on  all  furnace  operations  saved  fuel  and  im- 
proved quality.  Conveying  and  unloading  plants  were 
installed",  which  cheapened  the  cost  of  handling  raw 
materials  and  fuel.  Methods  were  adopted  which 
lessened  the  damage  to  parts  in  transit  from  one  de- 
partment to  another.  Staff  methods  of  investigation 
applied  to  every  department  decreased  costs  and  im- 
proved quality. 

Results  as  to  Output. — For  the  first  few  months  it 
was  impossible  to  determine  the  exact  balance  of  the 
plant,  as  the  maximum  output  for  each  department 
was  not  known.  As  soon  as  this  could  be  ascertained, 
however,  weak  departments  were  strengthened  by  the 
addition  of  equipment,  men,  or  special  attention,  until 
a  continuous  pull  was  exerted  upon  the  product 
throughout  the  course  of  its  movement  through  the 
factory.  The  way  some  departments  expanded  when 
cramping  conditions  were  removed,  was  astonish- 
ing. As  a  result,  responsibility  for  delays  was  placed 
where  it  belonged,  and  the  output  of  the  plant  was 
increased  nearly  50  per  cent. 

Results  as  to  Costs. — The  cost  system  was  over- 
hauled, useless  work  eliminated,  and  the  balance  so 
arranged  as  to  emphasize  variations  from  the  normal 
in  such  a  way  that  they  would  receive  immediate  at- 
tention. The  cost  of  vital  or  governing  operations 
was  figured  daily,  so  that  the  executive  knew  each 
morning  what  efficiency  had  been  attained  the  day 


400  EXECUTIVE  STATISTICAL  CONTROL 

previous.  The  shipping  department  was  reorganized 
along  lines  which  would  make  mistakes  difficult;  and 
the  $150,000  stock  of  manufactured  goods  which  it 
was  necessary  to  carry  was  recorded  on  a  continu- 
ous card-inventory  in  such  a  way  that  the  office  knew 
the  supply  of  each  variety  at  all  times,  and  there- 
fore could  safely  promise  delivery  or  manufacture 
new  stock  to  remedy  deficiencies.  The  time  of  all 
workmen  was  distributed  against  the  proper  oper- 
ation, so  that  prompt  and  reliable  records  were  se- 
cured. All  clerical  work  was  so  systematized  that, 
with  the  exception  of  the  formal  bookkeeping,  it 
could  be  done  by  one  man,  in  spite  of  the  fact  that 
sales  usually  amounted  to  over  $400,000  a  year. 

Results  as  to  Labor. — Labor  conditions  were  im- 
proved as  time  went  on.  About  three-quarters  of  the 
men  were  paid  by  the  day,  and  the  rest  were  under 
the  task  system.  Good  results  were  obtained  with 
the  latter,  as  the  time  allowed  for  the  tasks  was  never 
cut,  although  one  or  two  adjustments  had  to  be  made 
in  the  rate  per  hour  to  suit  conditions  in  the  district. 
The  efficiency  of  the  day-workers,  of  course,  depended 
largely  upon  the  driving  ability  and  the  personality 
of  the  foremen,  but  everything  was  done  to  remove 
obstacles  to  rapid  performance  and  to  make  working 
conditions  comfortable.  Definite  records  were  kept 
of  the  daily  production  of  each  man  or  crew,  so  that 
any  urging  to  further  efforts  were  as  intelligent  as  is 
possible  under  the  day-labor  system. 

Wherever  possible  it  was  made  easier  to  do  the 
right  thing  than  the  wrong,  and  it  was  generally  so 
contrived  that  the  persistent  wrong-doer  was  sooner 


THE  MODERATE-SIZED  FACTORY  401 

or  later  " hoist  with  his  own  petard."  The  adoption 
of  this  principle,  while  it  requires  absolute  fairness, 
a  knowledge  of  human  nature,  and  some  intuition, 
elevates  the  general  tone  of  an  organization  to  a 
marked  degree,  as  apparent  Fate  is  a  much  more  ter- 
rible opponent  than  the  usual  flesh-and-blood  boss. 

Every  effort  was  made  to  get  the  workmen  to  tell 
the  truth  when  a  fault  resulted  in  loss,  on  the  theory 
that  if  all  the  causes  for  a  defect  were  known  the 
defect  could  often  be  remedied  or  the  reason  for  the 
mistake  or  shortcoming  of  the  workman  intelligently 
removed,  while  if  some  factor  were  concealed,  wrong 
conclusions  would  be  reached.  In  fact,  in  one  or  two 
departments  the  workmen  knew  that  a  lie  meant  in- 
stant discharge,  while  the  most  flagrant  offense,  if 
honestly  explained,  meant  at  the  most  a  lay-off.  This 
resulted  in  a  mutual  trust  and  frankness  between  the 
executive  and  the  workmen. 

The  adoption  of  this  system  of  Staff  and  Line  or- 
ganization cut  the  labor  cost  in  less  than  two  years 
from  20  to  30  per  cent,  and  increased  the  output  50 
per  cent  and  the  quality  20  per  cent. 

Further  Application  of  the  System. — After  a  few 
years  the  system  was  installed  by  the  same  company 
in  its  other  factories.  In  one,  the  introduction  of  the 
system  allowed  the  superintendent  sufficient  time  to 
exercise  a  latent  inventive  genius,  which  revolution- 
ized a  considerable  branch  of  manufacture.  The  out- 
put of  one  machine  which  had  never  in  the  history 
of  the  business  exceeded  5000  units  a  day,  was  in- 
creased to  13,000  with  little  increase  in  the  operating 
crew.  All  sorts  of  articles  were  manufactured  which 


402  EXECUTIVE  STATISTICAL  CONTROL 

had  been  impossible  before,  and  great  improvements 
in  quality  were  made.  The  company  became  pos- 
sessed of  a  number  of  valuable  patents,  workmen 
were  rewarded  for  their  inventive  genius,  and  in- 
genuity was  stimulated. 

Record  outputs  for  various  machines  and  quality 
records  were  circulated  among  the  different  factories, 
and  successful  emulation  was  rewarded.  Output  in- 
creased, quality  improved,  and  costs  decreased.  The 
best  brains  were  released  from  routine,  and  the  re- 
sults were  of  incalculable  value  to  the  company. 

In  all,  this  system  was  installed  in  six  different 
factories,  and  the  invariable  result  was  lower  costs, 
increased  output,  and  improved  quality.  Later  it  was 
sucessfully  adapted  to  the  operation  of  mines  and 
quarries,  always  with  beneficial  results. 

Application  of  Scientific  Management. — In  1911  the 
principles  of  Scientific  Management  were  definitely 
stated  in  book  form  by  Taylor  and  Emerson.  Their 
importance  was  immediately  apparent  to  me,  and  in 
so  far  as  I  was  able  I  applied  them  to  the  operations 
of  the  various  plants.  Belting  was  standardized  and 
repairs  analyzed.  In  one  plant  alone  the  cost  of  re- 
pair parts  in  one  department  was  cut  over  $1200 
a  year — 33  per  cent.  The  cost  of  oil  in  one  factory 
was  reduced  nearly  $1500  a  year,  or  50  per  cent. 
Wherever  applied,  the  principles  effected  a  great 
saving — but  that  is  another  story.  The  point  is  that 
it  was  proved  that  the  Superintendent-Staff,  Assist-! 
ant  Superintendent-Line  Organization  was  adapted 
to  carrying  out  the  principles  of  Scientific  Manage- 
ment in  the  factory  of  moderate  size. 


THE  MODERATE-SIZED  FACTORY  403 

Meeting  the  Conditions.— These  principles  are  over- 
whelming in  their  logic.  It  is  the  machinery  of  the 
thing  that  terrifies  the  owner  of  the  small  factory. 
The  industrial  Engineer  does  not  get  very  far  with 
his  "staff  paralleling  the  Line,"  "Keeping  costs  on 
the  operations  of  each  man,"  "Planning  and  Dis- 
patching Departments,"  and  so  on,  before  his  ex- 
planations are  drowned  by  cries  of  "red  tape," 
"too  much  overhead,"  "too  much  system,"  "our 
business  wouldn't  stand  it,"  and  the  factory  is 
denied  the  privileges  which  it  is  admitted  the  large 
plant  can  afford. 

On  the  other  hand,  the  plan  of  freeing  the  super- 
intendent from  routine — making  him  work  his 
brains,  and  therefore  not  wasting  any  of  his  high 
salary  in  semi-physical  labor  which  a  cheaper  man 
can  do  as  well — seems  logical  and  contains  nothing 
revolutionary.  The  plan  is  one  which  appeals  also 
to  the  superintendent.  He  still  has  his  authority 
over  his  men,  in  case  he  wishes  to  exercise  it.  His 
prestige  is  in  no  way  diminished.  To  maintain  dis- 
cipline and  to  avoid  inroads  upon  his  time,  he  must 
give  orders  only  through  the  assistant  superintend- 
ent; but  the  good  executive  will  regard  this  as  no 
curtailment  of  authority. 

If  the  business  is  so  small  that  the  superintendent, 
by  calling  on  one  or  two  of  the  regular  departments 
for  assistance  from  time  to  time,  can  keep  the  prin- 
ciples of  Scientific  Management  in  operation,  the 
benefit  is  secured.  After  the  Industrial  Engineer  has 
made  the  analytical  time-studies  and  shown  him  how 
to  continue  them  on  the  more  simple  operations,  he 


404  EXECUTIVE  STATISTICAL  CONTROL 

can  keep  this  part  of  the  system  up  and  revise  the 
written  instruction  cards  from  time  to  time  with  oc- 
casional help  from  the  engineer.  The  bonus  system 
once  established,  the  superintendent  can  make  such 
slight  adjustments  as  art  necessary.  Dispatching, 
perhaps,  takes  part  of  a  clerk's  time,  some  of  his 
regular  foreman's  time,  and  demands  occasional  at- 
tention from  the  assistant  superintendent.  Routing, 
once  established  by  the  engineer,  needs  little  atten- 
tion. The  same  foremen  become  rather  more  special- 
ists, and,  with  little  increase  in  expense,  functional 
foremanship  is  established.  The  repair  man  who  is 
required  to  keep  certain  records  in  conjunction  with 
the  man  who  has  charge  of  the  storehouse,  is  told  to 
do  a  little  more  thinking,  and  to  let  his  helper  do 
more  of  the  manual  labor;  before  long,  with  the  en- 
gineer's help,  standardized  repairs  are  an  accom- 
plished fact.  All  this  is  very  crude  and  is  adapted 
to  only  the  smallest  sort  of  factory.  The  system  is 
flexible,  however,  so  that  the  plan  outlined  above 
may  be  expanded.  An  assistant  foreman  may  be  cre- 
ated here  and  there,  specialists  made  of  the  various 
repair  men,  and  the  activities  of  staff  officials  re- 
moved a  little  more  from  the  line  until  the  con- 
ventional Staff  and  Line  organization  recommended 
for  the  large  factory  is  reached. 

To  be  successful,  the  principles  of  Scientific  Man- 
agement must  be  rigidly  adhered  to,  no  matter  how 
small  the  factory.  The  services  of  the  best  Industrial 
Engineer  available  should  be  secured,  and  exactly 
what  is  contemplated  must  be  thoroughly  under- 
stood by  the  owner  and  the  executives. 


CHAPTER  XXII 
CONCLUSION 

Important  Opinions:  Educational  and  Govern- 
mental.— By  way  of  laying  final  emphasis  upon  the 
idea  that  facts  must  be  brought  to  the  executive's 
attention,  accurately,  forcefully,  and  continually,  I 
wish  first  to  cite  two  authorities,  the  one  educational, 
the  other  governmental. 

In  the  official  Register  of  Harvard  University — 
Volume  XII,  Part  6,  covering  the  Graduate  School 
of  Business  Administration — there  is  the  following 
important  statement: 

In  the  last  twenty  years  the  business  world  has  come  to 
see  new  value  and  new  uses  in  accounts;  and  accountants 
have  realized  the  necessity  of  constructing  accounts  so  that 
they  shall  tell  the  operating  manager  what  he  needs  to  know 
about  his  business.  Indeed,  it  may  now  be  said  that  no  busi- 
ness is  conducted  successfully,  or  can  be  long  so  conducted, 
unless  some  one  is  constantly  analyzing  that  business  and  pre- 
senting the  result  of  that  analysis  in  a  clear  statement.  Such 
analysis  and  statement  is  the  accountant's  task;  and  it  is  a 
very  different  task  from  that  of  the  bookkeeper.  The  person 
who  is  a  mere  bookkeeper  records  known  facts;  the  account- 
ant, by  scientific  analysis,  learns  the  facts  to  be  recorded,  or 
directs  the  bookkeeper  in  recording  the  known  facts  in  such 
fashion  that  the  unknown  facts  may  be  learned. 
405 


406  EXECUTIVE  STATISTICAL  CONTROL 

Proper  accounting  for  productive  enterprises  requires 
something  more  than  the  determination  of  costs.  The  ac- 
counts should  show  criteria  not  only  for  judging  the  effec- 
tiveness of  labor  and  of  materials,  and  for  determining  the 
amounts  and  causes  of  waste,  but  also  for  establishing  cer- 
tain standards  of  both  accomplishment  and  cost. 

Business  management  depends  for  its  success  upon  a  care- 
ful analysis  of  facts;  and  many  of  these  facts  can  best  be 
presented  in  statistical  form.  In  practically  every  kind  of 
business,  and  by  establishments  of  all  sizes,  properly  selected 
statistics  can  be  advantageously  utilized.  Statistics  are  used 
in  establishing  standards,  testing  efficiency,  detecting  waste, 
and  furnishing  a  guide  for  future  plans. 

An  analysis  of  any  business  problem  shows  not  only  its  re- 
lation to  other  problems  in  the  same  group,  but  also  the  inti- 
mate connection  of  groups.  For  example,  not  only  is  any 
problem  of  factory  management  related  to  other  problems  in 
the  factory,  and  any  problem  of  selling  related  to  other  prob- 
lems in  the  sales  department,  but  also  these  groups  of  prob- 
lems are  interdependent.  No  problem  in  business  is  purely 
intra-departmental.  Furthermore,  within  each  department 
there  must  be  preserved  a  uniform  principle  of  balance.  In 
preserving  this  balance,  it  is  necessary  for  the  management  to 
maintain  a  certain  detached  position  where  neither  personal 
bias  nor  immersion  in  detail  will  affect  the  policy  laid  down. 
Finally,  in  analyzing  the  problem,  a  definite  and  ordered 
method  of  approach  is  set  up. 

The  closing  paragraphs  of  the  Federal  Trade  Com- 
mission's bulletin  entitled  ''Fundamentals  of  a  Cost 
System  for  Manufacturers,"  bear  a  particularly  im- 
portant relation  to  the  subject  of  this  text: 

In  every  manufacturing  business  there  are  bound  to  occur 
leaks,  either  of  material,  labor,  or  expense.  If  statistics  are 
kept  showing  the  amount  of  material  necessary  to  do  certain 


CONCLUSION  407 

classes  of  work,  the  amount  of  labor,  and  the  amount  of  over- 
head expense,  an  increase  in  any  of  these  items  will  be  re- 
vealed by  a  comparison,  and  the  executive  will  be  in  a  posi- 
tion to  say  that  after  a  few  of  these  matters  have  been  taken 
up  with  the  factory,  the  factory  people  will  exercise  a  little 
more  care,  not  only  in  the  use  of  the  material  but  in  the  time 
they  spend  on  the  work.  A  cost  system  with  forms  properly 
designed  for  giving  statistical  information,  is  of  the  greatest 
aid  to  factory  efficiency. 

A  system  will  not  run  itself ;  neither  will  it  in  itself  reduce 
costs  or  increase  efficiency.  This  is  strictly  up  to  the  manu- 
facturer himself.  A  system  will  give  him  the  information, 
and  if  this  information  is  properly  used,  he  will  unquestion- 
ably find  that  his  system  is  not  an  item  of  expense,  but  a 
very  valuable  asset. 

If  a  manufacturer  purchases  a  new  machine  before  his 
old  one  is  worn  out,  he  does  so  because  he  expects  the  amount 
expended  to  increase  his  profits,  either  through  economy  in 
operation  or  through  an  increase  in  production.  He  looks  on 
this  as  an  investment,  and  not  an  expense.  Office  methods 
have  been  improved  to  quite  as  large  an  extent  as  machinery, 
and  an  investment  in  improved  methods  will  produce  a  re- 
turn just  as  will  an  investment  in  improved  machinery. 

One  of  the  strongest  arguments  in  favor  of  installing  a 
practical  cost  system,  is  the  fact  that  every  manufacturer 
who  has  installed  one,  and  who  has  operated  it  for  at  least  a 
year,  is  firmly  convinced  that  it  is  a  paying  proposition. 

The  Federal  Trade  Commission  is  urging  manufacturers  to 
give  ihe  subject  of  accurate  costs  the  attention  it  deserves. 
It  has  found  that  unreliable  costs  of  production  and  distri- 
bution cause  a  great  deal  of  unfair  competition  and  a  heavy 
business  death  rate. 

While  the  claim  is  not  made  that  a  cost  system  will  save 
a  man  from  failure,  the  claim  is  made  that  a  man  who  knows 
where  he  stands  day  by  day,  is  very  much  less  likely  to  make 


408  EXECUTIVE  STATISTICAL  CONTROL 

a  failure  of  his  business  than  one  who  is  directing  his  business 
by  guess  work. 

To  the  executive  who  is  considering  the  installa- 
tion of  a  system  of  statistical  control,  I  would  speak 
one  special  word  of  warning.  Some  executives  feel 
that  they  can  buy  so  much  ''efficiency"  or  so  much 
"scientific  management,"  just  as  they  would  pur- 
chase so  many  pounds  of  sugar  or  of  flour.  They 
seem  to  think  that  they  can  plaster  this  mysterious 
but  definite  commodity  all  over  their  business,  which 
will  subsequently  run  itself  in  a  highly  efficient  or 
scientific  manner  without  requiring  any  further  at- 
tention from  them.  Nothing  could  be  further  from 
the  truth.  Under  scientific  industrial  efficiency,  ex- 
ecutive decision  based  on  guessing  under  casual  man- 
agement, is  replaced  by  executive  decision  based  on 
facts.  Executive  decision  is  quite  as  necessary  under 
one  type  of  management  as  under  the  other.  The 
difference  lies  in  the  results. 

Increasing  Stress  Upon  Responsibility. — About  fif- 
teen years  ago,  the  man  at  the  head  of  a  great  coal 
property  was  widely  ridiculed  because  of  a  statement 
of  his  to  the  effect  that  the  large  corporation  is  a 
sacred  trust  from  on  high — that  the  management  of 
such  a  property  is  a  responsibility  bestowed  by  the 
Deity,  by  nature,  by  circumstances,  or  by  fate.  To  a 
democratic  public  this  theory  savored  too  much  of  the 
divine  right  of  kings.  Recently,  however,  the  same 
doctrine  has  assumed  a  new  and  more  popular  angle. 
H.  G.  Wells,  in  his  recent  analysis  of  European  indus- 
trial conditions,  writes: 


CONCLUSION  409 

But  here,  running  through  the  thoughts  of  the  Englishman 
and  the  Italian  and  the  Frenchman  and  the  American  alike, 
one  finds  just  the  same  idea  of  a  kind  of  officialism  in  owner- 
ship. It  is  an  idea  that  pervades  our  thought  and  public  dis- 
cussion today  everywhere,  and  it.  is  an  idea  that  is  scarcely 
traceable  at  all  in  the  thought  of  the  early  half  of  the  nine- 
teenth century.  The  idea  of  service  and  responsibility  in 
property  has  increased  and  is.  increasing,  the  conception  of 
"hold-up",  the  usurer's  conception  of  his  right  to  be  bought 
out  of  the  way,  fades. 

The  Keynote  of  Scientific  Management. — Responsi- 
bility is  the  keynote  of  the  new  science  of  man- 
agement. " Authority  to"  must  be  replaced  by  "re- 
sponsibility for,"  to  paraphrase  H.  L.  Gantt.  Once 
scientific  management,  which  includes  statistical  con- 
trol, has  placed  the  facts  in  the  hands  of  the  execu- 
tive, his  responsibility  begins  and  his  duty  lies  clear 
before  him.  But  the  facts  alone  are  not  enough. 
Not  long  ago,  an  expert  in  the  installation  of  sys- 
tems of  graphic  control  told  me  that  his  greatest 
difficulty  was  in  "keeping  the  manager  from  jump- 
ing on  his  department  heads."  "As  soon  as  a  new 
chart  was  placed  before  the  company's  chief  execu- 
tive, disclosing  unsuspected  and  appalling  discrep- 
ancies, the  first  thing  he  did  was  to  reach  for  his 
phone.  Time  and  again  I  had  to  grab  his  hand 
to  prevent  him  from  calling  some  poor  devil  of 
a  divisional  superintendent  on  the  carpet  to  face 
facts  he  never  knew  existed."  Scientific  manage- 
ment was  needed  in  the  factory,  as  well  as  charts  in 
the  office.  It  isn't  fair  to  show  up  a  man's  defi- 
ciencies unless  you  are  prepared  to  help  him  overcome 


410  EXECUTIVE  STATISTICAL  CONTEOL 

them.  Destructive  criticism  of  a  man  or  of  his  de- 
partment, leads  to  nothing  except  bitterness.  You 
must  not  only  show  up  the  inefficiency,  but  you  must 
supply  the  remedy. 

Modern  versus  Ancient  Practice. — Wherever  the 
idea  of  authority  rather  than  of  responsibility  pre- 
vails, there  is  the  favorite  lurking  place  of  that 
superannuated  crustacean  who,  in  the  blindness  of 
selfishness,  has  taken  for  his  motto:  "I  hold  my 
men  ^responsible  for  results — all  I  am  interested  in 
is  results."  The  "result  hog"  became  an  anomoly 
when  "tainted  money"  was  discovered.  Up  to  that 
time  money — "never  mind  how  you  got  it,  but 
money" — measured  success.  The  modern  executive 
must  add  to  his  demands  for  "results,"  active  per- 
sonal assistance  in  attaining  results.  I  do  not  mean 
that  he  should  do  the  work  of  every  incompetent 
assistant  that  he  acquires  or  inherits,  but  I  do  mean 
that  it  is  his  duty  to  gauge  the  potential  of  his 
assistants,  and  to  develop  to  the  highest  degree  the 
latent  powers  of  such  as  are  capable  of  becoming 
effective  executives.  The  modern  executive  is  a 
teacher — he  must  be  able  to  inspire  his  men  to 
make  effort  and  to  self-development.  He  must 
assist  them,  send  them  forth  upon  trips  of  inves- 
tigation, call  in  experts  to  help  them  solve  their  prob- 
lems, induce  them  to  study  and  improve  themselves. 
Given  a  man  with  a  high  potential,  and  such  a 
man's  failure  is  a  direct  reflection  upon  his  superior 
officer.  The  crab  who  "cares  only  for  results"  is 
becoming  a  relic  of  the  past — now  seen  only  in  the 
geological  strata  disclosed  by  some  financial  up- 


CONCLUSION  411 

heaval  when  an  antediluvian  concern  goes  into 
bankruptcy.  Responsibility  is  the  watchword  of 
the  true  executive — responsibility  to  his  stock- 
holders, responsibility  to  his  assistants,  responsi- 
bility to  the  public,  responsibility  to  his  own  ideals. 
Let  him  remember  responsibility,  and  his  authority 
will  take  care  of  itself. 

Getting  Orders  Carried  Out. — Aside  from  the 
test  of  responsibility,  the  true  measure  of  an  ex- 
ecutive lies  in  his  ability  to  get  his  orders  carried 
out.  Any  fool  can  give  orders — it  takes  a  man  to 
make  others  do  his  bidding.  Brute  force  is  no 
longer  sufficient.  "Fire  the  superintendent,"  does 
not  solve  the  industrial  problem.  The  modern  ex- 
ecutive must  have  the  facts.  Lacking  these,  he  can- 
not persuade  his  men,  his  fellow-executives,  or  his 
stockholders.  True  control  is  based  upon  an  exact 
knowledge  of  existing  conditions.  The  man  who 
has  the  facts  continually  at  his  command,  and  who 
has  taught  his  organization  to  act  upon  such  facts, 
quickly,  smoothly,  and  wisely,  will  lead  his  forces 
to  that  industrial  success  which  is  the  measure  of 
victory  for  the  workmen,  for  the  stockholders,  and 
for  the  community.  For  such  a  man,  personal  suc- 
cess is  a  certainty. 


APPENDIX  A 

MECHANICAL  AIDS   TO   THE  ASSEMBLY 
OF  STATISTICS 

Adding  and  Listing  Machines. — For  the  sake  of 
simplicity  in  the  preceding  pages  I  have  discussed 
the  assembly  of  data  largely  on  the  assumption  that 
the  more  common  methods  of  figuring  "by  hand" 
with  the  aid  of  an  adding  machine — such  as  the  Bur- 
roughs or  the  Comptometer — would  be  used.  No 
modern  general  office,  and  only  the  smallest  and  most 
primitive  kind  of  factory  office,  can  afford  to  do  with- 
out at  least  one  such  machine.  In  the  first  place,  a 
machine  makes  possible  much  more  rapid  figuring, 
and  this  means  that  a  smaller  clerical  force  may  be 
maintained  or  that  records  will  be  more  readily  ac- 
cessible, or  both;  and  in  the  second  place,  the  figur- 
ing is  done  more  accurately  by  machine,  so  that  the 
danger  of  the  executive's  making  costly  errors  of 
judgment  is  greatly  reduced. 

The  following  description  of  such  machines  will 
make  their  use  clear.  This  extract  is  from  E.  St. 
Elmo  Lewis's  very  helpful  book  entitled  "Efficient 
Cost  Keeping,"  which  is  published  by  the  Burroughs 
Adding  Machine  Company  of  Detroit,  Michigan. 

The  Burroughs  Adding  and  Listing  Machine  has  two 
very  definite  and  very  distinct  functions,  both  of 
which,  however,  are  performed  simultaneously  by  the 
same  mechanism. 

412 


MECHANICAL  AIDS  413 

1.  It  writes  down  figures  just  as  much  more  leg- 
ibly than  they  can  be  written  down  by  hand,  as  a 
typewriter  writes  letters  more  legibly  than  they  can 
be  written  by  hand.    The  writing  is  faster  than  on  a 
typewriter,  because  several  keys  can  be  operated  at 
a  single  motion,  and  all  ciphers  and  punctuation  print 
automatically  where  required. 

2.  It  automatically  adds  all  the  figures  it  writes 
down,  and  is  ready  at  any  time,  by  the  mere  opera- 
tion of  a  handle,  to  record,  without  the  possibility  of 
error,  the  absolutely  correct  total  of  all  the  figures 
written  down,  a  total  which  has  been  accumulating 
in  the  machine  during  the  writing  operation. 

Now,  as  more  than  90  per  cent  of  all  the  time  of 
all  the  clerks  who  are  employed  in  the  accounting  and 
cost  departments  of  all  the  businesses  of  all  the  world, 
is  spent  in  writing  down,  adding,  and  multiplying 
figures;  and  as  the  Burroughs  Adding  and  Listing 
Machine  writes  with,  vastly  greater  speed  than  any 
man  can  write  by  hand,  writes  more  legibly,  more 
regularly,  and  in  absolutely  even  columns — were  this 
its  only  function,  its  existence  would  be  more  than 
justified;  it  would  be  a  paying  purchase  at  its  price 
for  almost  any  large  business. 

But  the  Burroughs  does  more  than  this  for  the 
addition  of  all  the  figures  written  down  is  done  in 
literally  no  time  at  all;  the  mere  writing  of  them 
down  serves  at  the  same  instant  automatically  to  add 
them,  and,  what  is  more  important,  to  add  them  with- 
out the  possibility  of  error. 

As  a  matter  of  fact,  it  takes  the  average  clerk 
about  nine  minutes  to  write  down  and  add  this  column: 


414  EXECUTIVE  STATISTICAL  CONTROL 

157.38 

762.91 

435.75 

800.76 

43.02 

987.25 

500.00 

1,003.50 

245.65 

82.47 

4,250,86 

1,014.75 

243.92 

914.75 

5,475.80 

14,850.07 

410.25 

9.10 

.74   . 

27.72 

896.35 

1,238.63 

7,800.00 

10,000.00 

127.34 

77.01 

303.24 

3,808.89 

458.92 

1,456,789.34 

11,025.22 

600.10 


MECHANICAL  AIDS  415 

2,250.85 

14,823.45 

8,207.12 

2,100.00 


1,552,723.11* 

This  isn't  the  fastest  work  that  can  be  done,  or  the 
slowest. 

But  the  most  experienced  bookkeeper  in  the  world 
is  absolutely  obliged  to  check  over  his  addition  after 
he  has  made  it,  in  order  to  be  at  all  certain  that  his 
result  is  correct. 

The  average  operator — here  again,  not  the  fastest 
or  the  slowest — can  write  down  from  the  same  data 
the  same  list  of  figures  on  the  Burroughs  Adding  and 
Listing  Machine  in  'approximately  a  minute  and  a 
half. 

When  he  has  finished  listing,  the  movement  of  a 
lever  or  the  pressing  of  a  bar  prints  the  correct  addi- 
tion at  the  bottom  of  the  column,  and  automatically 
maks  the  amount  so  printed  as  a  total,  by  printing  a 
star  (*)  beside  it. 

No  amount  of  checking  over  can  make  a  correct 
result  more  correct;  and  since  the  addition  of  the 
Burroughs  Adding  and  Listing  Machine  cannot,  by 
any  possibility,  be  wrong,  no  checking  is  required. 

Here  is  a  clean  saving  of  five-sixths  of  the  time  re- 
quired for  a  very  simple  arithmetic  proposition — the 
kind  of  work  that  most  clerks  are  doing  most  of  every 
day. 

Take  the  matter  of  multiplying;  suppose  your  cost 


416  EXECUTIVE  STATISTICAL  CONTROL 

clerk  has  the  following  extensions  on  piece-work  time 
tickets  to  make: 

141  @  .12  a  100  57  @  .50  a  100 

100  @  .50  a  100  568  @  .20  a  100 

225  @  .20  a  100 

The  average  cost  clerk,  using  paper  and  pencil, 
would  require  about  2  minutes  to  make  these  ex- 
tensions and  secure  a  total.  An  average  Burroughs 
operator  with  a  Calculating  Machine  can  do  the  same 
work  in  35  seconds.  An  expert  can  do  it  in  25  sec- 
onds. 

The  operation  of  the  Burroughs  Listing  Machine  is 
extremely  simple.  A  boy  or  a  girl  can  in  a  few  min- 
utes learn  to  operate  it. 

Figures  are  "put  into"  the  machine  by  simply 
touching  the  tops  of  the  keys.  The  figures  are 
printed  on  paper  in  even  columns  and  added  by  pull- 
ing a  handle  or,  on  the  electrically  operated  machine, 
by  touching  a  bar. 

After  each  addition,  the  adding  wheels  show  the 
total.  This  may  be  printed,  at  any  time,  by  simply 
depressing  a  total  key  while  the  handle  is  moved  for- 
ward. 

The  Burroughs  subtracts,  multiplies,  and  divides 
faster  than  the  problem  can  be  written  down  with 
paper  and  pencil. 

There  are  special  Burroughs  machines  fitted  for 
handling  all  the  problems  of  the  cost-keeper. 

Burroughs  machines  are  built  to  handle  your  work 
as  you  are  doing  it  now.  It  is  not  necessary  to 
change  your  system  to  use  a  Burroughs. 

The  Burroughs  Duplex  is   a  very  valuable   time- 


MECHANICAL  AIDS  417 

saving  machine  for  handling  costs.  It  is  a  machine 
with  two  sets  of  adding  wheels,  each  of  which  will 
accumulate  a  total  up  to  the  full  keyboard  capacity 
of  the  machine.  Thus,  with  a  nine-column  Burroughs 
Duplex,  it  is  possible  to  list  and  total  items  aggregat- 
ing eighteen  columns;  with  a  seventeen-column  ma- 
chine it  is  possible  to  list  and  total  items  aggregating 
thirty-four  columns. 

The  Duplex  is  capable  of  doing  three  different 
classes  of  work. 

First.  It  can  list  and  add  items  like  the  regular 
Burroughs,  and  take  totals  and  sub-totals. 

Second.  It  can  list  and  add  groups  of  items,  print 
the  total  for  each  group,  and  then  give  the  grand 
total  of  all  the  groups.  This  is  convenient  for  secur- 
ing separate  totals  of  each  workman's  earnings  and 
a  grand  total  of  all,  at  one  operation. 

This  is  done  by  use  of  the  Transfer  Total  Key,  by 
which  each  group  total  is  printed,  cleared  from  the 
upper  adding  wheels,  and  transferred  to  the  lower  add- 
ing wheels,  where  the  grand  total  is  accumulated. 

Third. — It  can  list  and  add  two  sets  of  items  in  one 
column  or  in  separate  columns,  each  of  which  can  be 
accumulated  into  a  total  equal  to  the  full  capacity  of 
the  machine.  This  can  be  used  in  adding  day- 
wOrkers'  earnings  in  upper  adding  wheels,  piece- 
workers' in  lower,  and  so  on. 

The  operation  of  the  two  sets  of  accumulators  is 
controlled  by  the  Duplex  lever,  which  is  located  at 
the  left  side  of  the  keyboard.  This  is  in  a  convenient 
location  for  the  operation  of  the  lever  with  the  left 
hand. 


418  EXECUTIVE  STATISTICAL  CONTROL 

When  the  lever  is  set  in  the  position  of  "Upper 
Counter,"  items  listed  are  accumulated  in  the  upper 
set  of  adding  wheels.  When  in  the  "Lower  Counter" 
position,  the  items  are  accumulated  in  the  lower  set 
of  adding  wheels. 

Following  are  some  of  the  things  which  a  Duplex 
Burroughs  will  handle  in  a  Cost  Department: 

With  the  machine  it  is  possible  to  secure  the  cost 
of  jobs  by  departments,  together  with  the  grand  total 
for  all  departments,  at  one  handling  of  the  figures. 

A  total  of  the  payroll  can  be  obtained  for  each  de- 
partment of  a  plant,  and  a  grand  total  for  all  de- 
partments can  be  printed  without  putting  the  depart- 
ment totals  bacli  into  the  machine. 

Total  labor  cost  can  be  secured  by  accounts,  to- 
gether with  the  grand  total  of  cost,  at  one  operation. 

Each  sheet  of  a  payroll  can  be  totaled  and  a  grand 
total  of  the  entire  roll  secured,  at  one  operation. 

Cost  and  selling  price  can  both  be  added  and  listed 
at  one  operation  in  the  same  or  in  separate  columns 
on  the  sheet,  and  the  items  can  be  marked  to  dis- 
tinguish the  cost  price  from  the  sales  price. 

The  total  weekly  or  monthly  earnings  of  each  work- 
man, and  a  grand  total  for  all  workmen,  can  be  ob- 
tained at  one  operation. 

The  Burroughs  Unlimited  Split  feature  greatly  in- 
creases the  possibilities  of  the  Burroughs  for  payroll 
work,  because  it  permits  the  handling  of  several 
columns  at  the  same  time. 

It  enables  the  operator  to  divide  the  machine  into 
as  many  adding  sections  as  he  desires.  This  is  done 
by  means  of  small  levers  at  the  top  of  keyboard.  For 


MECHANICAL  AIDS  419 

instance,  a  fifteen-column  Duplex  machine  equipped 
with  Unlimited  Split  device  may  be  divided  so  that 
you  can  add  six  columns  of  five  figures  each  at  the 
same  time.  If  you  wish  some  of  these  columns  not 
to  add,  the  levers  can  be  so  arranged  instantly. 

The  name  " Unlimited  Split"  is  well  chosen,  be- 
cause the  machine  has  unlimited  possibilities.  The 
levers  can  be  changed  in  a  fraction  of  a  minute,  be- 
cause there  is  no  complicated  mechanism. 

In  handling  payrolls  with  this  device,  the  em- 
ployee's number,  hours  worked,  and  amount  of  pay 
can  be  run  off  at  one  operation. 

With  the  Duplex  Unlimited  Split  Machine,  by  using 
this  method  instead  of  taking  a  grand  total  each 
time  the  department  payroll  is  finished,  the  operator 
can  take  a  transfer  total.  Thus  he  secures  separate 
totals  of  the  hours  and  amounts  in  departments,  and 
the  grand  total  of  hours  and  amounts  for  the  entire 
payroll  is  accumulated  in  the  lower  adding  wheels. 

The  Burroughs  Machine  used  in  a  great  many  cost 
departments  is  the  Burroughs  Duplex  with  15  or  17 
columns'  adding  and  listing  capacity  (30  or  34  col- 
umns with  Duplex  feature).  This  machine  is  electric- 
ally operated,  and  may  have  a  carriage  for  handling 
sheets  12*4 "  or  18"  wide.  It  may  have  the  Unlimited 
Split  Device  so  that  the  keyboard  may  be  divided  into 
two  or  more  adding  sections.  A  machine  may  be  ar- 
ranged to  add  hours  and  minutes,  or  whole  numbers 
and  fractions. 

Thus  the  workman's  time  and  earnings  can  be  writ- 
ten and  added  at  one  operation  by  dividing  the  key- 
board into  two  sections. 


420  EXECUTIVE  STATISTICAL  CONTROL 

One  of  the  greatest  advantages  of  a  listing  machine 
for  such  work  as  this  lies  in  the  fact  that  every  step 
of  the  calculation  is  printed  on  the  paper.  When 
printed  lists  are  not  required,  greater  speed  can  be 
obtained  on  the  Burroughs  Calculator. 

A  very  little  practice  soon  makes  a  machine  oper- 
ator quite  expert  in  multiplying,  and  when  once  he 
has  mastered  the  operation  he  will  never  want  to  give 
up  using  the  machine. 

The  Burroughs  Calculating  Machine  (non-listing) 
is  a  great  assistance  to  the  cost  keeper  in  figuring 
time  tickets,  pro-rating,  and  all  work  requiring  divi- 
sion, multiplication,  subtraction,  and  addition  when 
no  printed  record  is  necessary. 

This  is  a  light,  portable  machine  which  can  easily 
be  carried  around  the  office  and  takes  up  little  room. 

This  machine  does  not  print  figures,  but  the  result 
of  any  operation  is  always  plainly  visible  on  the  add- 
ing wheels.  Merely  depressing  the  key  causes  the 
amount  indicated  on  the  surface  to  be  added  in  its 
column.  It  is  not  necessary  to  pull  the  handle  unti 
you  wish  to  clear  the  machine  for  new  calculations. 

The  machine  can  be  operated  by  the  touch  method 
and  great  speed  in  performing  mathematical  oper 
ations  can  be  attained  with  a  little  practice. 

The  Burroughs  Calculating  Machine  and  an  aver 
age  clerk  will  easily  handle  750  extensions  an  hour 

Besides  the  machines  arranged  to  add  and  list  dol- 
lars and  cents,  special  machines  can  be  furnished  to 
add  any  kind  of  compound  numbers,  such  as  feet  anc 
inches;  dozens  and  gross;  fractions  of  1/4,  1/8,  1/12 
1/16,  1/32,  1/64;  hours  and  minutes;  tons  and  hun- 


MECHANICAL  AIDS  421 

dredweights ;  pounds  and  bushels;  grains  and  penny- 
weights; pounds,  shillings,  and  pence;  or  any  other 
data  in  the  way  of  foreign  money,  dates  and  amounts. 

The  foregoing  description  by  Mr.  Lewis  of  the  Bur- 
roughs machines,  although  fairly  lengthy  is  not  ex- 
travagant in  its  claims.  I  have  included  it  here,  for 
I  have  seen  in  many  factories  so  great  a  loss  of  effort 
in  the  billing  and  accounting  departments  that  could 
easily  have  been  reduced  by  the  use  of  the  machines 
described.  Other  devices  for  similar  purposes  have 
been  recently  placed  on  the  market,  and  several  type- 
writer manufacturers  have  perfected  their  machines 
in  such  manner  as  to  make  them  invaluable  for  list- 
ing and  billing  purposes. 

Computing  and  Tabulating  Machines. — In  addition 
to  adding  and  listing  machines  there  is  a  group  of 
what  is  known  as  "Computing  and  Tabulating  Ma- 
chines," which  operate  on  quite  a  different  principle. 
One  of  the  best  known  is  the  Hollerith  Tabulating 
Machine,  Figure  88,  which  compiles  statistics  auto- 
matically at  great  speed.  The  information  to  be  as- 
sembled is  entered  upon  cards,  similar  to  the  ones 
shown  in  Figure  89,  by  means  of  a  key  punch  with 
keys  something  like  a  typewriter.  When  a  portion  of 
the  information  to  be  entered  upon  a  card  is  common 
to  a  number  of  cards — such  as  the  date  and  depart- 
ment on  a  group  of  time  cards — a  gang  punch  is  used 
which  punches  holes  in  all  the  cards  at  once. 

Any  sort  of  information  may  be  compiled,  as  the 
same  mechanism  fits  any  situation.  The  variation  oc- 
curs in  the  cards,  which  are  printed  to  suit  each  class 
of  information  it  is  desired  to  gather. 


422  EXECUTIVE  STATISTICAL  CONTROL 


FIG.    88.       HOLLERITH   KEY   PUNCH   FOR   PERFORATING    CARDS 

As  soon  as  the  information  has  been  punched  on 
the  cards,  the  stack  of  cards  is  placed  in  a  sorting 
machine,  Figure  90,  which  automatically  divides  them 
according  to  a  predetermined  arrangement.  This  is 
effected  by  means  of  electric  contacts,  made  when  the 
punched  hole  in  the  card  passes  over  a  brush  terminal 
in  the  machine.  The  cards  are  sorted  at  a  speed  of 
about  250  per  minute  into  pockets  in  the  machine,  and 
are  then  placed  in  racks  and  left  there  until  called 
for  by  the  tabulating-machine  operator. 

The  tabulating  machine  adds  the  numerical 
amounts  from  statistical  divisions  on  the  cards  at  the 
rate  of  150  cards  per  minute,  and  renders  the  state- 
ment of  the  statistical  information  desired.  The  sys- 
tem is  of  immense  value  where  large  quantities  of 
data  are  required  at  short  notice.  The  outfit  is  leased 
to  users  by  the  Tabulating  Machine  Company,  of  New 
York  City,  at  a  rate  which  roughly  approximates  the 
monthly  salary  of  one  clerk.  Concerns  of  sufficient 


MECHANICAL  AIDS 


423 


y/1  3  5  7  9  It 

/                    MONTH 

f          2  4  6  8  10  12 

Town 

300 

taMI 

d 

04Pt. 

00 

SoWBj 

OO  0 

900 

tr 

OlOiO  60:0  0 

Profit 

X106 

000005 

0  0  C 

X 

0 

0  0 

)  0  0  0  0 

1    1 
22 

|«* 

§  13  4 
14  5 
15  6 
16  7 
17  8 
18  9 

1111 

22222 
J  3  3  3  3 

1  1  1 

222 
333 

1  1  1 

222 

333 

1 
2 
3 

1  1 

22 

33 

1  1  t 

^22 

333 

1  1  1 
222 

333 

ijr.i 

2,2:2 

1    1-1,1 

2  2J2  2 
3  3:3  3. 

11  i  i  i  i  3 

2  2  2J2  2  c 
3  3  3  ,3  3  < 

t  4  4  4  4 
35555 
56666 
77777 
38888 
99999 

444 
555 
666 
777 
888 
999 

444 
555 
666 
777 
886 
9  9  £ 

4 
5 
6 
7 
8 
9 

4  4 
5  5 
6  6 
7  7 
3  8 
9  9 

444 
555 
666 
7  7  7 
8  8.8 
999 

444 
55  5 
5,6  6 
7.  7-7 
888 
999 

4  4!4  4  4; 

sVs  5-5 
eVe  3  e 

7  7J7  7  7 

a  sla  ft  a 
9  9J9  a  e 

4  4 
55 
56 
7  7 
3  8 
3-9 

4  4  4;4  4  § 
5  5  5:5  5  g 

7  7  ZI7  7  \ 

838.38 
9  9  9:9  9 

/J& 

•  0  .0 

1     ' 

1}  -- 

SS 

"2. 

•"» 

'~ 

_ 

7  — 

•         *Q«« 

»o«b* 

•T  i  ^ 

2  2  »2 

3333 

M»p 

222 
333 

•  • 
1  i 

2  2 

3  3 

»0  0  0 

till 

2222 

3«3  3 

•  • 

2  2 

3  3 

0    ' 

_.. 

U 

t  2  2 

)  3« 

~li 

• 

3  3 

11 

2« 
*3 

2222 

>3  a  3« 

1    1 
222! 

»  3  3  : 

S  33  3 

•3*333: 

3  3 

3 

9+» 

15  *  5  5  •  5  ! 

5  5 

5 

4  «  «4 

6  6 

6  6 

6  a  86 

i  e  a  e 

5555 

e" 

6  -6- 

.... 

... 

?..6..8._6 

3   ' 

8  B  8 

8  s  a  a  a  a  E 

8  8 

8 

)   88 

a  e 

8  8 

7-7  »» 

888 

a  8 

8888 

8  8 

9  9  9« 

)  9  9  S 

PIG.   89.      HOLLERITH    MACHINE   CARDS 
An  unpunched  card  above,  aud  a  punched  one  below. 


424 


EXECUTIVE  STATISTICAL  CONTROL 


MECHANICAL  AIDS  425 

size  to  keep  two  men  busy  on  statistical,  payroll,  and 
stockroom  figuring  should  very  carefully  consider  the 
installation  of  some  such  mechanical  system,  as  it  is 
quicker,  more  accurate,  and  renders  possible  consider- 
ably more  work  per  man  employed,  than  the  usual 
statistical  methods  in  use. 

A  reprint  of  a  very  interesting  paper  read  by  W.  E. 
Freeman  before  the  National  Electric  Light  Associ- 
ation at  its  San  Francisco  Convention,  is  distributed 
by  the  Powers  Accounting  Machine  Company,  of  New 
York.  This  booklet  begins  with  a  description  of  the 
first  "difference  engine"  built  by  Charles  Babbage, 
in  1820,  and  carries  the  story  of  the  improvement  in 
accounting  machines  down  to  the  present  day.  The 
Hollerith  machine  described  above  is  covered,  as  are 
also  the  Powers  and  Pierce  Machines. 

The  powers  accounting  machine  uses  punched  cards 
similar  to  those  used  in  the  Hollerith  machine.  These 
are  sorted  on  a  somewhat  different  type  of  sorting 
machine,  and  are  then  fed  into  what  is  called  a 
"Tabulator-Printer,"  Figure  91,  which  not  only  regis- 
ters the  results  but  prints  them  on  record  sheets, 
Figure  92. 

The  Pierce  System  is  described  by  Mr.  Freeman  as 
using  a  card  on  which  the  information  is  written  or 
printed  as  well  as  punched.  Three  machines  are  used: 
a  perforating  machine,  a  distributing  machine,  and 
an  automatic  ledger  machine. 

Mr.  Freeman's  paper  discusses  mechanical  account- 
ing in  connection  with  accounting  systems  for  public- 
service  corporations,  and  treats  at  some  length  of  the 
adaptation  of  graphic  charts  for  presenting  accounts 


426  EXECUTIVE  STATISTICAL  CONTROL 


FIG.   91.      POWERS   TABULATOR-PRINTER 


MECHANICAL  AIDS 


427 


STATISTICAL  REPORT  OF  MERCHANDISE      PORTED  DURING  THE  MONTH  OF  . 


.191 1.     District  of. 


I 


nil 
•:« 

.Hi 
,5:r: 
"ttt 

tilt 


PIG.   92.      SAMPLE   OF  WORK   PERFORMED   BY  POWERS 
TABULATOR-PRINTER 

Original  size  of  sheet,  16  by  18  inches. 


428  EXECUTIVE  STATISTICAL  CONTROL 

in  classified  order,  closing  with  a  summary  vari- 
ous papers  read  before  the  National  Electric  Light 
Association  dealing  with  the  subject  of  punching, 
counting,  sorting,  and  tabulating  machines.  The 
booklet  should  be  read  by  every  one  who  desires  to 
make  a  thorough  study  of  the  subject. 

Mechanical  Classification  of  Executive  Data. — 
Quite  recently  there  has  been  placed  upon  the  market 
a  mechanical  device  for  locating  filed  information 
with  extreme  rapidity.  The  principle  of  the  Bertillon 
system  is  generally  known,  by  means  of  which  a  card 
containing  a  criminal's  record  may  be  located  among 
ten  thousand  other  cards  by  classification  according 
to  physical  characteristics.  The  man  under  suspicion 
is  first  classified,  for  instance,  as  having  brown  hair. 
That  differentiates  him  from  all  the  black-haired,  red- 
haired  and  yellow-haired  men,  and  eliminates,  say, 
seven  thousand  cards.  He  is  then  classified  accord- 
ing to  height  as,  say,  six  feet.  Whereupon  all  the 
five-foot-and-a-fraction  men  are  eliminated  from 
among  the  remaining  three  thousand,  and  only  a  few 
hundred  cards  are  left  to  peruse.  It  is  then  noted 
that  his  forearm  is  18  inches  long — and  the  number 
of  cards  is  cut  down  to  a  few  dozen,  perhaps.  It  is 
then  noted  that  he  has  a  wart  on  the  end  of  his  nose, 
and  he  is  finally  located  as  the  only  brown-haired, 
six-foot,  eighteen-incb-forearm,  wart-nosed  man 
»TT»orig  ten  thousand  criminals,  and  is  clapped  into 
jail. 

The  Findex  Conroany,  by  means  of  a  similar  selec- 
tive classification  coupled  with  a  punching  and  sort- 
ing system,  has  made  it  possible  to  locate  mechanic- 


MECHANICAL  AIDS  429 

ally  any  filed  data  almost  instantly.  In  a  recent  let- 
ter Leo  S.  Robinson,  President  of  the  Company,  de- 
scribes the  working  of  the  system  as  follows: 

"The  'Findex'  may  be  described  as  a  ledger  for 
posting  executive  decisions,  or  any  facts  other  than 
dollars  and  cents.  From  a  long  study  of  the  prin- 
ciples involved  in  'Findex'  treatment,  we  find  that  it 
is  common  for  the  executive  to  be  called  upon  to  de- 
cide the  same  question  over  and  over  again,  and 
every  time  he  is  compelled  to  go  into  the  original 
records,  examine  the  facts,  weigh  their  relative  im- 
portance, and  make  a  judicial  determination.  In  the 
case  of  accounts  in  a  ledger,  it  occurred  to  me  that 
the  entry  of  a  certain  digit  in  a  certain  column  on  a 
certain  page  on  the  ledger,  accompanied  by  a  nota- 
tion of  the  date,  is  in  reality  an  executive  decision. 
It  reveals  to  the  observer  the  fact  that  some  time  in 
the  past  (we  do  not  know  when)  an  order,  and  pos- 
sibly a  considerable  amount  of  correspondence  and 
many  other  papers,  have  been  executed,  but  all  that 
interests  us  is  the  fact  that  out  of  the  whole  transac- 
tion there  was  evolved  a  debit  against  the  man  whose 
name  is  written  at  the  top  of  the  page  for  a  certain 
amount,  which  is  indicated  by  the  entry.  We  do  not 
have  to  waste  any  time  to  go  further  than  this,  ex- 
cept in  a  case  of  a  question  of  the  entry,  when,  of 
course,  we  can  look  up  the  details  of  the  transaction 
which  lead  to  the  entry. 

"The  'Findex'  provides  a  method  of  posting  other 
facts  quite  similar  to  that  of  the  ledger.  Referring 
to  the  card  (Figure  93)  you  will  note  that  Position 
No.  Ill  (Sings)  has  been  slotted,  which  indicates 


430 


EXECUTIVE  STATISTICAL  CONTROL 


oc"  -  "  -o  -  o 
orb"  o~*  o^o^^'qjp  -  o'-  crb  .- 
o%:"o^o^^~""o"^cT-  b  ro  -  o  -  p"-o~' 
o'T'b"  o"  o7b""b"r6fc7'b  -  o  ••  OJJDC« 
o^ro'^'rb"bfc;:l5rb  -  o  -  " 
o"rbToTb"-^"^'ro"':rb  -  o  -  cj 
o^%S)»"o  ^oTo^o  -o  -  o  •  oj^cPp'-o 
-'o^'o^b^b  -  o  -  o  •  o^p-b 
OO  r  QT-O-T-Q  -  o  -  o  ••  o~r6r"b~ro 


561 


FIG.    93.      SAMPLE   OF   FINDEX   CARD 

that  Miss  Wilson  sings.  Hereafter,  for  all  time,  her 
card  is  in  the  'Findex',  and  every  time  we.  are  asked 
for  any  one  who  sings,  her  card  will  appear.  The 
details  of  how  we  have  decided  who  can  sing,  are 
immaterial;  the  main  point  is  to  eliminate  from  the 
consideration  of  the  executive  all  those  who  do  not 
sing.  There  are  in  this  file  of  1800,  1600  women,  of 
whom,  say,  25  per  cent — or  400 — can  sing.  There  are, 
we  may  say,  of  these  1600,  100  who  have  had  kinder- 
garten training,  but  of  the  400  who  can  sing,  possibly 
only  40  would  fall  into  the  group  of  100  with  kinder- 
garten experience.  As  we  want  a  woman  who  is  a 
governess,  in  which  class  there  would  be,  say,  50,  we 
might  say  that  of  these  50  only  20  would  have  kinder- 


MECHANICAL  AIDS  431 

garten  experience,  and  of  these  20  who  have  kinder- 
garten experience  only  10  can  sing.  Now,  the  prob- 
lem is  for  the  executive  to  select,  with  due  regard  for 
economy  of  time,  a  female  applicant  for  kindergarten 
wok,  who  is  an  experienced  governess  and  who  can 
sing  (four  attributes).  The  procedure  with  the  'Fin- 
dex'  is  as  follows: 

'  'Findex'  rods  are  introduced  into  Position  No. 
93— Governess;  No.  97— Kindergarten ;  No.  102— Fe- 
male; No.  Ill — Sings.  We  thus  lock  in  their  place  in 
the  container  the  cards  of  all  applicants  who  do  not 
fall  within  all  of  these  classes,  and  there  are  mechan- 
ically selected  10  cards,  bearing  the  names  of  the  10 
women  with  these  qualifications.  The  availability 
and  the  relative  merits  of  these  ten  are  matters  for 
executive  decision,  and  by  the  operation  of  the  'Fin- 
dex'  the  executive  is  relieved  of  the  consideration  of 
1790  names,  none  of  which  will  fulfill  all  of  the  con- 
ditions imposed.  He  therefore  confines  himself  to  the 
ten  available  names  and  gives  them  such  study  as  the 
case  requires,  making  a  selection  according  to  Ms 
judgment.  The  saving  of  time  is  evident,  to  say  noth- 
ing of  the  feeling  of  finality  which  results  from  this 
method. 

"It  is  my  personal  opinion  that  the  'Findex'  has 
by  no  means  as  yet  received  the  .full  measure  of 
recognition  which  is  coming  to  it.  We  must  expect 
that  this,  like  other  new  things,  will  establish  itself 
slowly,  but  we  have  had  the  most  remarkable  success 
with  the  installations  already  working.  In  the  in- 
stance referred  to  above,  we  have  made  a  saving,  on 
the  average,  of  eight  cards  to  each  applicant,  which 


432  EXECUTIVE  STATISTICAL  CONTROL 

would  be  over  14,000  cards  on  the  1800  list.  We 
avoid  the  possibility  of  error  resulting  from  a  misfil- 
ing  of  this  great  mass  of  cards,  and  we  save  the 
executive  the  vexation  and  annoyance  of  having  to 
handle  them,  to  say  nothing  of  the  monetary  saving, 
which  could  easily  be  figured  to  equal  the  cost  of  the 
system. 

''This  discovery  was  the  result  of  my  own  personal 
troubles  in  handling  index  cards.  I  found  this  one  of 
the  most  annoying  things  I  ever  had  to  do,  and  I 
conceived  the  idea  that  whenever  cross-indexing  was 
necessary  it  should  be  done  by  some  mechanical 
means  which  would  not  necessitate  the  making  of 
duplicate  cards. 

"In  order  to  apply  the  'Findex'  in  any  line  of 
business  it  is  necessary  that  a  study  be  made  some- 
what similar  to  the  study  made  by  an  accountant 
before  determining  the  ledger  headings  and  opening 
a  set  of  books.  In  the  'Findex'  system  these  head- 
ings indicate  the  pertinent  attributes  of  the  units 
classified.  We  start  with  the  assumption  that  every 
individual  is  negative  in  every  attribute,  and  when 
the  study  determines  that  any  particular  individual 
is  no  longer  negative  in  any  particular  point,  his  card 
is  slotted,  to  indicate  that  there  is  no  negative  hin- 
drance, and  to  prevent  his  card  from  being  locked 
in  position  when  the  'Findex'  rod  is  introduced  in 
this  particular  hole.  What  the  'Findex'  rod  really 
does  is  to  lock  in  the  cards  of  all  the  individuals  who 
do  not  possess  certain  qualifications. 


APPENDIX  B 
MISCELLANEOUS  AND  BIBLIOGRAPHY 

Ratio  Charts. — Professor  Irving  Fisher,  of  Yale 
University,  in  Quarterly  Publications  of  the  Ameri- 
can Statistical  Association,  has  written  an  exhaustive 
account  of  the  advantages  of  the  "Ratio  Chart,"  the 
use  of  which  I  illustrated  in  Chapter  VII  in  connec- 
tion with  the  discussion  of  the  advantages  of  log- 
arithmic or  "arithlog"  platting  paper  under  certain 
circumstances.  Professor  Fisher's  article  is  well 
worth  careful  study,  and  I  have  availed  myself  of  his 
permission  to  quote  certain  extracts  from  it  which 
set  forth  the  advantages  of  this  type  of  chart  under 
some  conditions. 

"We  may  compare  any  two  magnitudes  of  like 
kind,  by  means  either  of  their  difference  or  of  their 
ratio.  In  the  first  kind  of  comparison  'an  inch  on 
the  end  of  one's  nose'  is  exactly  as  much  as  an  inch 
added  to  the  height  of  the  Washington  Monument;  in 
the  second  kind  of  comparison,  on  the  other  hand,  'an 
inch  on  the  end  of  one's  nose'  is  an  addition  of  about 
40  per  cent,  or  as  much  as  220  feet  added  to  the 
height  of  the  Monument. 

"The  ordinary  chart  is  adapted  to  difference  com- 
parisons rather  than  to  ratio  comparisons,  whereas 
the  statistician  is  usually  concerned  with  ratio  com- 


434  EXECUTIVE  STATISTICAL  CONTROL 

parisons  far  more  than  with  difference  comparisons." 
The  value  of  this  type  of  chart  from  the  standpoint 
of  the  graphic  interpretation  of  facts,  is  later  sum- 
marized : 

"The  eye  reads  a  ratio  chart  more  rapidly  than  a 
difference  chart  or  a  table  of  figures.  We  may  re- 
capitulate what  most  easily  catches  the  eye: 

1.  If  we  see  a  curve  ascending,  and  nearly  straight, 
we  know  that  the  statistical  magnitude  it  represents 
is  increasing  at  a  nearly  uniform  rate. 

2.  If  the  curve  is  descending,  and  nearly  straight, 
the  statistical  magnitude  is  decreasing  at  a  nearly 
uniform  rate. 

3.  If  the  curve  bends  upward,  the  rate  of  growth 
is  increasing. 

4.  If  downward,  decreasing. 

5.  If  the  direction  of  the  curve  in  one  portion  is 
the  same  as  in  some  other  portion,  it  indicates  the 
same  percentage  rate  of  change  in  both. 

6.  If  the  curve  is  steeper  in  one  portion  than  in 
another  portion,  it  indicates  a  more   rapid  rate   of 
change  in  the  former  than  in  the  latter. 

7.  If  two  curves  on  the  same  ratio  chart  run  paral- 
lel, they  represent  equal  percentage  rates  of  change. 

8.  If  one  is  steeper  than  another,  the  first  is  chang- 
ing at  a  faster  percentage  rate  than  the  second. 

9.  The  imaginary  straight  line  most  nearly  repre- 
senting, to  the  eye,  the  general  trend  of  the  curve,  is 
its  'growth  axis,'  and  represents  the  average  rate  of 
increase    (or   decrease) ;   and   the   deviations    of   the 
curve  from  this  growth  axis  are  plainly  evident  with- 
out recharting. 


BIBLIOGRAPHY  OF  MANAGEMENT  435 

10.  The  slope  of  the  imaginary  line  between  any 
two  points  on  a  curve  indicates  the  average  rate  of 
change  between  the  two,  and  is  illustrated  by  the 
charts  here  given.  (See  Figures  94,  95,  and  96.) 

"Figures  94  and  95,  taken  from  a  brief  article  of 
mine  in  the  'New  York  Times  Analyst'  show  a  type 
of  error  taken  from  actual  statistics.  Figure  94  gives 
the  impression  that  the  prices  of  breadstuffs  have 
fluctuated  less  than  the  prices  of  'all  commodities.' 
On  the  ratio  chart,  however,  as  shown  in  Figure  95, 
although  exactly  the  same  numbers  are  plotted,  it  is 
seen  that  breadstuffs  have  actually  fluctuated  a  trifle 
more  violently  than  'all  commodities.' 

"For  comparing  in  detail  any  two  curves  on  ratio 
charts,  such  as  those  in  Figure  95,  we  may  do  what 
we  have  just  seen  is  not  properly  permissible  on  a 
difference  chart, — we  may  move  bodily  either  curve, 
the  upper  curve  ownward  or  the  lower  curve  up- 
ward, until  the  two  are  close  together.  Then  the 
various  degrees  of  parallelism  or  divergence  at  vari- 
ous periods  of  time,  may  be  seen  with  the  utmost 
clearness.  This  is  done  in  Figure  96.  Such  close 
comparison  will  usually  give  quickly,  through  the 
eye,  a  better  practical  picture,  I  think  of  the  degree 
of  correlation  and  certainly  of  the  location  of  the  cor- 
relation than  can  be  obtained  even  by  the  various 
calculations  of  coefficients  of  correlation." 

Bibliography  of  Cartography.— I  would  recommend 
that  any  man  who  intends  to  install  a  system  which 
is  to  any  degree  extensive  make  a  careful  study  of 
the  various  methods  of  platting  statistics.  Willard 
C.  Brinton's  book  on  "Graphic  Methods  for  Present- 


436 


EXECUTIVE  STATISTICAL  CONTROL 


I? 

,sssn 

.....«BB 

1,1-1  1  1  1  1  1 

3   \ 

\  i 

•n 

1878 
1879 

toon 

1  -  §      - 

r!878 

_     " 

* 

1881 
1882 

1      5, 

• 

\gJ 

s 

~f 

"  '  ' 

^1000 

1884 
1885 
1886 
1887 

£ 

[8 

^ 

IRRfi 

1889 

IQQCJ 

J 

1  • 

J 

1QQ1 

1892 
1893 
1894 

» 

^ 

L1QQQ 

1894 

1896 
1897 
1898 
1899 
1900 
1901 
1902 
1903 
1904 
1905 
1906 
1907 
1908 

• 

-1896 

1897 

j 

\ 

1 

\ 

-1900 

I 

* 

-1902 

^ 

\ 

K!  904 

* 

.. 

1907 

S 

i 

> 

^ 

1912 

3 

1913 
1914 
1915 
1916 
1917 

fr. 

> 

1913 

\ 

j 

*  »  ^ 

a  ""«», 

•+T+ 

K 

»  s  s  §  s 

ss  s  ss  I  si 

SiEi 

\   \ 

n 

BIBLIOGRAPHY  OF  MANAGEMENT 


437 


. 

>                £ 

? 

5 

:     s 

5      5 

3    f 

s  ; 

SJ  i 

i  i  i 

1    i    1    Ir-Li 

Hill 

1878- 

\ 

% 

-| 

T""  = 

f878 

1880- 

JJ 

&• 

-K"-ff 

1880 

% 

t, 

ip:  i 

»» 

^j 

t  i 

.*•• 

Ix-^ 

iftft^ 

/ 

z   i 

2 

i 

L 

1885 

1K&£ 

£ 

/ 

.  .  1886 

1 

N 

IfcftT 

\ 

f  :::: 

•  •  •  •  -IfiKft 

~5* 

, 

L    --.. 

r 

J    I 

_  lft<>0 

**^^ 

Vt- 

^.  _  .  .  .  -iflqi 

loqo 

+* 

pt 

.  .  -ig92 

1090 

/ 

±  

^  1893 

1894 

% 

/ 

±  

.  .  .1004 

jcqc 

£ 

±  : 

SSE- 

/ 

± 

\ 

±  : 

,  .  .1007 

** 

\ 

±  

i  .  .  -1898 

• 

-r  -  •  •  -1899 

\ 

K 
5 

I 

1900 

• 

rt 

*•% 

S 

.  .  .1002 

r' 

± 

.  .  -lOflQ 

tt 

7L. 

.  _  .  .  .    1Q/U 

% 

Af- 

.  .  -IQ/JC 

* 

Jt 

1907 

1907 

»% 

V 

w 

1909 

* 

1910 

^ 

.....  1911 

^ 

. 

.  .  iq]2 

* 

' 

1911 

r 

>  ,, 

s  i9ig 

•  ^^_ 

^I7 

£ 

;              ^ 

5 

! 

s     i 

; 

S   i 

3  ; 

3  i 

i 

i  §§ 

iiifi 

438 


EXECUTIVE  STATISTICAL  CONTROL 


• 


i?i  a 
fill 


-3" 


§    §      i 

...ft 

1878 
1879-1 

(JfT  — 

—  ih  i  = 

:  i   .f878 

J880- 

11    \ 

\    0 

-1879 

1881 

Jo            \ 

1882 

I* 

**»    § 

1883 

*"y       § 

1884- 

1885- 

2 

\J_ 

1886- 

» 

f~ 

1887- 

• 

\ 

1888- 

\ 

\ 

^+^ 

y 

1QQA 

\ 

\ 

1889 

f  CQ1- 

^^^^ 

j\ 

1892- 

1  _,^ 

|^ 

1893- 

-  / 

J 

1894- 

jT 

f\ 

1ftQ<v 

« 

1896- 

—  •*"'        / 

[ 

\ 

\            "• 

. 

I  BOO 

» 

\ 

.....  1900 

[j 

••»» 

'V 

•  •  •  -1903 

J 

* 

^ 

. 
* 

.....  i90fi 

^ 

•  •  1107 

x      , 

*J 

•  -        1909 

»        v 

1910 

r 

1Q11 

^% 

•  •  1912 

*    . 

1Q11 

/      I 

-  -  T    1914 

i  •       1916 

1917 

1  ••• 

! 

;               j 

J      s 

rf 

BIBLIOGRAPHY  OF  MANAGEMENT  439 

ing  Facts"  should  be  studied  carefully,  since  it  il- 
lustrates the  correct  methods  of  graphic  representa- 
tion as  well  as  the  methods  which  are  misleading.  To 
the  man  who  would  go  more  deeply  into  the  subject, 
the  following  bibliography,  taken  from  Professor 
Fisher's  article,  may  prove  of  assistance. 

JEVONS,  W.  S.,  Investigations  in  Currency  and  Finance, 
Macmillan,  London,  pp.  53,  128,  150. 

MARSHALL,  ALFRED,  On  the  Graphic  Method  of  Statistics, 
Jubilee  Volume  of  the  Royal  Statistical  Society,  June  22-24, 
1885,  p.  258. 

WOOD,  GEORGE  H.,  Some  Statistics  Relating  to  Working 
Class  Progress  Since  1860,  Journal  of  the  Royal  Statistical 
Society,  December  1899,  p.  660. 

BOWLEY,  ARTHUR  L.,  Elements  of  Statistics,  King,  London, 
pp.  188-196. 

BENINI,  R.,  Principle  di  Statistica  Metodologica,  Unione 
Tipografico-Editrice  Torinese,  Turin,  pp.  144-148. 

BRINTON,  WILLARD  C.,  Graphic  Methods  for  Presenting 
Facts,  The  Engineering  Magazine  Company,  New  York,  pp. 
132-7. 

BRINTON,  WILLARD  C.,  and  others,  Preliminary  Report  of 
the  Joint  Committee  on  Standards  for  Graphic  Presentation 
1915,  p.  5.  Printed  by  the  American  Society  of  Mechanical 
Engineers. 

FISCHER,  IRVING,  Plotting  Ratios  long  with  Amounts,  New 
York  Times  Annalist,  March  19,  1917,  p.  398. 

WENZEL,  JOHN,  Graphic  Charts,  Scientific  American  Sup- 
plement, No.  2154,  April  14,  1917,  p.  236. 

Bibliography  of  Management. — Certain  other  books 
of  a  more  general  nature  have  been  found  extremely 
helpful  at  times — some  for  thefr  inspirational  value, 


440  EXECUTIVE  STATISTICAL  CONTROL 

othern  for  the  concrete  suggestions  that  they  con- 
tain. For  the  sake  of  the  reader  just  beginning  the 
study  of  scientific  industrial  efficiency,  the  following 
list  of  titles  is  included: 

GOWIN,  E.  B.,  The  Executive  and  His  Control  of  Men — A 
Study  in  Personal  Efficiency,  MacMillan,  New  York  City. 

JONES,  EDWARD  D.,  The  Business  Administrator,  The  En- 
gineering Magazine  Co.,  New  York  City. 

HINE,  CHARLES  DE  LANO,  Modern  Organization,  The  En- 
gineering Magazine  Co.,  New  York  City. 

KNOEPPEL,  C.  E.,  Installing  Efficiency  Methods,  The  En- 
gineering Magazine  Co.,  New  York  City. 

EMERSON,  HARRINGTON,  Efficiency  as  a  Basis  for  Operation 
and  Wages,  The  Engineering  Magazine  Co.,  New  York  City. 

EMERSON,  HARRINGTON,  The  Twelve  Principles  of  Efficiency, 
The  Engineering  Magazine  Co.,  New  York  City. 

GANTT,  H.  L.,  Work,  Wages  and  Profits,  The  Engineering 
Magazine  Co.,  New  York  City. 

GANTT,  H.  L.,  Industrial  Leadership,  Yale  University  Press. 
New  Haven. 

TAYLOR,  F.  W.,  Principles  of  Scientific  Management,  Har- 
per &  Bros.,  New  York  City. 

TAYLOR,  F.  W.,  Shop  Management,  Harper  &  Bros.,  New 
York  City. 

GILBRETH,  FRANK  B.,  Motion  Study,  Van  Nostrand,  Ne\v 
York  City. 

SHADWELL,  ARTHUR,  Industrial  Efficiency — Contrasted  in 
England,  Germany  and  America,  Longmans,  Green  &  Co., 
New  York  City. 

Fundamentals  of  a  Cost  System  for  Manufacturers,  Fed- 
eral Trade  Commission^  Government  Printing  Office,  Wash- 
ington. 


BIBLIOGRAPHY  OF  MANAGEMENT  441 

THOMPSON,  C.  B.,  Scientific  Management,  Harvard  Uni- 
versity Press,  Cambridge. 

GOING,  CHARLES  B.,  Methods  of  the  Santa  Fe,  The  Engi- 
neering Magazine  Co.,  New  York  City. 

VANDEVENTER,  JOHN  H.,  Machine  Shop  Management, 
McGraw-Hill  Book  Co.,  New  York  City. 

TAYLOR,  F.  W.,  The  Art  of  Cutting  Metals,  Transactions 
American  Society  of  Mechanical  Engineers. 

The  above  mentioned  book  by  C.  B.  Thompson  con- 
tains a  very  complete  bibliography  covering  books 
and  articles  written  on  the  subject  of  Scientific  Man- 
agement up  to  the  date  of  this  publication.  Pam- 
phlets covering  and  describing  the  books  published  by 
them  respectively  may  also  be  obtained  from  the  fol- 
lowing publishing  houses : 

The  Engineering  Magazine  Co.,  6  E.  39th  St.,  New  York 
City. 

The  McGraw-Hill  Book  Co.,  239  W.  39th  St.,  New  York 
City. 

D.  Van  Nostrand  Co.,  23  Murray  St.,  New  York  City. 

Harper  &  Bros.,  Franklin  Sq.,  New  York  City. 

A.  W.  Shaw  Co.,  Chicago,  111. 

Periodicals  of  Management. — The  following  publi- 
cations will  be  found  to  contain  many  helpful  articles 
to  the  student  of  management: 

The  Bulletins  of  the  Taylor  Society,  obtainable  from  the 
Office  of  the  Secretary,  Hanover,  N.  H.,  contain  many  scholar- 
ly articles. 

Industrial  Management  (formerly  The  Engineering  Maga- 
zine) published  at  6  East  39th  St.,  New  York  City,  is  the  me- 
dium of  expression  for  the  foremost  industrial  engineers  in 


442  EXECUTIVE  STATISTICAL  CONTROL 

the  country,  and  is  of  particular  assistance  to  the  manager  as 
well  as  to  the  engineer. 

The  Journal  of  the  American  Society  of  Mechanical  En- 
gineers, published  at  29  W.  39th  St.,  New  York  City,  while 
largely  devoted  to  the  subjects  implied  by  its  title,  contains 
many  articles  dealing  with  the  executive  and  industrial  en- 
gineering aspects  of  the  business. 

The  100%  Magazine,  published  at  327  South  La  Salle  St., 
Chicago,  is  the  official  organ  of  The  Western  Efficiency  So- 
ciety. 

The  Bulletins  of  The  New  York  Efficiency  Society,  52 
Broadway,  New  York  City. 

The  magazines,  "System"  and  "Factory"  published  by 
A.  W.  Shaw  Co.,  Wabash  Ave.,  Chicago. 

While  the  above  lists  are  intended  in  no  way  to 
be  complete,  I  believe  that  the  man  in  seach  of  more 
light  on  the  subject  of  definite  and  effective  man- 
agement, by  following  the  leads  indicated,  may  un- 
cover much  that  will  prove  of  benefit  to  him.  You 
cannot  ''learn  out  of  a  book  how  to  run  a  business," 
but  you  can  learn  from  a  book  how  to  do  better  what 
you  are  doing.  You  can  learn  to  look  ahead  and  you 
can  learn  to  look  upward  and,  after  all,  that  is  about 
all  there  is  to  success. 


INDEX. 


Accomplishment   As    a    Basis   of   Pay- 
ment, 366 
Accounts,  Classification  of,  65-70 

— Salesmen's  Expense,  355 
Accurate  Standardization,  274 
Action,  Collective,  226 
Actual      Versus      Standard      Output, 
Curves  Showing,  148 

— Profit,  Curves  of,  142 
Adding  and  Listing  Machines,  412 
Administration  Charges,  380 

— Expense,  Chart  of,  381 

— Expense  Compared  to  Net  Sales, 

381 
Advantages  of  Mnemonic  System,  58 

— Ruling  Pen,  103 
Analyses,  Cost,  Comparison  of,  53 
Analysis  Essential  to  Economy,  200 

—of  Fluctuations,  132 
Ancient  Versus  Modern  Practice,  410 
Antiquated  Methods,  29 
Apparatus,   Control,  299 
Application  Blank,  179-180 

— Card,   167 

Application  of  Fundamental  Principles, 
33 

— Scientific  Management,  402 

— the  Golden  Rule,  168 
A.  S.  M.  E.,  Journal  of,  Reference  to, 

442 

Assembling  Costs,  47 
Authority,  Relegation  of,  99 

Balance,  Plant,  Improper,  216 
Basis  of  Scientific  Management,  37 
Belt  Failures,  Chart  Showing,  282 
Benini,  R.,  Reference  to,  439 
Bibliography  of  Cartography,  435 
Blank,  Application,  179-180 
Board,  Dispatch,  44,  45 

— Dispatch,   Operation  of,  233 

— Excess,  228-230 
Boards,  Dispatch,  Detail  of,  236 
Bonus  System  and  Price-Cutting,  363 

— Sales,  Chart  of,  361 


443 


Eowley,  Arthur  L.,  Reference  to,  439 
Brinton,  Willard  C.,  Reference  to,  489 
Bulletins  of  New  York  Efficiency  So- 
ciety, Reference  to,  482 

— Taylor  Society,  Reference  to,  441 
Business,  Competitive  Type  of,  342 

— Monopolistic  Type  of,  338 

— Obtained  Through  Price-Cutting, 
360 

— Secured  Through  Preference,  360 

— Strategic  Type  of,  380 

— Three  Classes  of,  360 

— Types,  337 

— Value  of  Dependableness,  325 

Campaigns,  Safety  First,  191 
Card,  Application,  167 

— Finder,  430 

— Punch,  Hollerith,  422 

— Register,  Filling  Out  of,  169 

— Service,  59 

— Sorting  Machine,   Hollerith,   424 
Cartography,  Bibliography  of,  435 
Centralized  Control,  Effect  of,  304 
Charges,  Administration,  380 

— General,  378 
Chart,  Daily  Output,  220 

— Departmental  Output,  309 

— For  Estimating  Financial  Require- 
ments, 387 

— Heat,  295 

— Idle  Machine  Cost,  322 
Charting,    Income    and    Expenditures, 

388 

Chart  of  Administration  Expense,  Op- 
eration Cost,  and  Net  Sales,  381 

— Delay  Causes,  326 

— Delayed  Delivery,  329 

— Delayed  Product,  327 

— Departmental  and  Total  Output, 
221 

— Machines  Idle,  323 

— Sales  Bonus  System,  361 

— Sales  Expense  Compared  to  Net 
Sales,  356 


444 


INDEX 


— Scientific    Management    Economy, 

391 

— Supplies,  209 
Charts,  Material,  208 

— Output,  Daily,  and  Monthly,  219 
— Ratio,   433 

— Results  Obtained  from,  301 
Chart  Showing  Belt  Failures,  282 
— Cost-Output,  266-267 
— Crew  Efficiency,  254 
— Departmental    and    Total    Output, 

221 

— Departmental  Efficiency,  269 
— Effect  of  Centralized  Control,  304 
— False  Economies,  392 
— Machine  Shut-Downs,  279 
— Number  of  Employees,  222 
— Reduction    of    Essential    Factors, 

306 

— Result  of  Furnace  Standards,  277 
— Return  on  Investment,  379 
— 'Salesman's  Efficiency  of  Price  and 

Quantity,  359 
Chief  Dispatcher,  Desk  of,  297 

— Office  of,  234 
Classification  of  Accounts,  65-70 

— Executive  Data,  428 
Collection  of  Data,  296 
Collective  Action,  226 
Combination    Mnemonic    and    Numeri- 
cal System,  62 
Common-sense  Tests,  162 
Comparison  of  Administration  Expense 

to  Operation  Cost,  381 
— Cost  Analyses,  53 
— English  and  American  Methods,  9 
— "Excess  Cards,"  231 
— Graphic  Curves,  108 
— Index  Numbers  by  the  Difference 

Method,  436 
— Index  Numbers  by  Ratio  Method, 

437 

— Salesman  and  Superintendent,  332 
Competent    Management,    Insuring    of, 

305 

Competitive  Type  of  Business,  342 
Computing    and    Tabulating    Machine, 

421 

Conservation  of  Energy,  91 
— Labor  and  Material,   157 
—Supplies,   199,  207 
— Time,  91 

Constriction   Points,    Location   of,   217 
Continuous-Production      Systems,      58, 

316 

Control  Apparatus,  Technical,  299 
— Centralized,  Chart  Showing  Effect 
of,  304 


— Curve,  Example  of,  115 

— Curves,  114 

Control    Graph    Showing    Kiln    Turn- 
over, 302 

— Units  per  Man,  256 
Co-operation,   226 
Corporations,  Growth  of,  4 
Correspondence,   Method   of   Handling, 

82 
Cost  Analyses,  Comparison  of,  53 

— Labor,  Direct  and  Indirect,  136 

— Manufacturing,   149 

— Manufacturing,     Curves    Showing, 
150 

— of  Material  per  Ton,   136 

— of  Sewer-Pipe  Manufacture,   127 

— Output  Chart,  266-267 

— Sheet,  Monthly,  50 

— Summary,   Monthly,    127 

— System,     Fundamental     Principles 
of,  32 

— Systems,  Elaborate,  Dislike  of,  30 
Costs  and  Operative  Efficiency,  52 

— Assembling  of,  47 

— Manufacturing,       versus       Selling 
Price,   133 

— of  Production,   389 

— Production,  55,  211 

— Results   as  to,  399 
Crew  Efficiency,   Chart   Showing,  254 
Curve,  Control,  Example  of,  115 
Curves,  Control,  114 

— Graphic,  113 

— Graphic,   Comparison  of,    108 

— of  Output,    136 

— Relationship  of,  139 
Curves   Showing   Standard  and  Actual 
Output,   148 

— Total  Manufacturing  Cost,  150 

Daily  Distribution  Sheet,  48 
— Output  Charts,  219,  220 
— Total  and  Departmental  Output, 

221 

Danger  of  Over-Expansion,  384 
Data,  Collection  of,  296 

— Importance  of  Tabulating,  351 
Delay  Causes,   Chart  of,   326 
Delayed  Product,  Chart  of,  327 
Delays,  Reducing  the  Number  of,  278 
Delegation  of  Authority,  99 
Delivery,  Delayed,  Chart  of,  329 
Department,   Inspection,    343 

— Stores,    Scientific    Method    of   Re- 
ward in,   371 

Departmental  Labor  Turnover,  188 
— Output  Chart,  221,  309 
— Relationship,   342 


INDEX 


445 


— Summation  of  Losses,  203 

— Turnover,   186 

Dependableness,  Business  Value  of,  325 
Dependent  Sequence,  Law  of,  243 
Desirable  Workers,  Reaching  the,   177 
Desk  of  Chief  Dispatcher,  234 

— Departmental  Dispatcher,   297 

— Dispatch  Clerk,  45 
Detail  of  Dispatch  Boards,  236 

— Subordination  of,  11 
Details,  Handling  of,  126 

— Special,  120 
Difference  Method  of  Comparing  Index 

Numbers,  436 
Difficulties    of    Introducing     Scientific 

Management,   396 
Direct  and  Indirect  Labor  Cost,  136 

— Labor  Expense,  Graphic  Presenta- 
tion of,   152 
Dispatch  Board,  44,  45 

— Operation  of,   233 
Dispatch  Boards,  Detail  of,  236 
Dispatch  Clerk,  Desk  of,  85 
Dispatcher,  Chief,  Desk  of,  234 

— Departmental,    Control     Desk    of, 

297 
Dispatching  and  Planning,  312 

— Casual,  Example  of,  320 
Dispatch  Office,  Illustration  of,   227 
Distributing  Dividends  Evenly,  385 
Distribution  Sheet,  Daily,  48 
Dividends,  Even  Distribution  of,  385 
Double-Star  Sales,  354 

Economic  Waste,  258 

Economy  Induced  by  Analysis,  200 

Effectively  Conserved  Supplies,  207 

Effect  of  Centralized  Control,   304 
— Equipment  Upon  Labor,  284 

Efficiency,  55 

— Chart,  Departmental,  269 

— Industrial,  Result  of,  299 

— Operative  and  Costs,  52 

— Score  Card,  Salesman's,  353 

— Society,   New  York,   Reference  to 

Bulletins   of,   442 

— Society,     Western,     Reference     to 
Official  Organ  of,   442 

Efficient  Executives,   78 

Elements  of  Scientific  Management,  39 

Emerson,     Harrington,     Reference     to 
480 

Employees,    Departmental    and    Total, 

Employed  Daily,  222 
—Safety  of,   189 

Employment,  Length  of,  182 
—Manager,  163 

Energy,  Conservation  of,  91 


Engineering  Magazine   Company,   Ref- 
erence to,  441 

English   and   American   Methods    Com- 
pared, 9 

Environment,  246 
Equipment,  Effect  of,  on  Labor,   284 

— Unstandardized,  276 
Essential    Factors    Reduced    to    Single 

Curve,  306 

Establishing  Relationship  Between  De- 
partments, 342 
Estimating      Financial     Requirements, 

Method  of,   387 

Even  Distribution  of  Dividends,  385 
Evolution   of   the  Superintendent,   396 
Example  of  Casual  Dispatching,  320 
— Casual  Planning,  319 
— Control   Curve,   115 
Exception      Principle,       Graphs      and 

the,    117 

Excess  Board,  228-230 
Executive,    Bird's-Eye   View   Obtained 

by,  122 
— Data,  Mechanical  Classification  of, 

428 

— Inefficiency,  Remedy  for,  97 
— Notebook,  Pages  from,  93 
Executives,  17 
— Efficient,  78 
— Inefficient,  73 
— Narrow-Minded,   13 
— Strain  upon,   8 
Expenditure  and  Income,   Charting  of, 

Expense  Accounts,  Salesmen's,  355 
— Direct-Labor,     Graphic    Presenta- 
tion of,   152 

— Indirect-Labor,    Graphic    Analysis 
of,    153 

Factors,  Essential,,  Reduced  to  Single 

Curve,  306 
— Fundamental,   135 
Factory  Magazine,  Reference  to,  442 
Facts  versus  Opinion,  100 
False  Economies  Affected  by  Scientific 

Management,  392 
Federal  Trade  Commission,   Reference 

to,  440 

Feudal  Type  of  Organization,  15 
Ficker,   N.   T.,    on   Interest,    Reference 

Note  to,  375 
Field  for  Scientific  Management,   1 

— Scientific  Methods,  289 
Figure  1,  Typical  Dispatch  Board  and 

Dispatch  Clerk's  Desk,  45 
— 2,  Daily  Distribution  Sheet    48 
—3,   Monthly  Cost  Sheet,  50 


446 


INDEX 


— 4,  Service  Card,  59 

— 5,    Pages    From    An    Executive's 

Notebook,  93 
— 6,     Graduated    Ruling     Pen     and 

Specimen  Lines,   105 
— 7,  Comparison  of  Graphic  Curves, 

108 

— 8,  Graphic  Curves,  113 
— 9,  Control  Curve,  Example  of,  115 
— 10,  "Net  Profit"  Graph,  130 
— 11,  Gross  Profits,  Graph  of,  132 
— 12,    Selling    Price    versus    Manu- 
facturing Costs,  Graph  of,  133 
— 13,  Output,  Curves  of,  136 
— 14,  Standard  versus  Actual  Profit 

Curves,   142 

— 15,   Selling  Prices,   Curves   Show- 
ing, 144 
— 16,   Standard  and  Actual  Output, 

Curves  Showing,  148 
— 17,     Total     Manufacturing     Coit, 

Curves  Showing,  150 
— 18,  Direct-Labor  Expense, 

Graphic  Presentation  of,  152 
— 19,  Indirect-Labor  Expense, 
Graphic  Analysis  of,   153 
— 20,  Application  Card,  167 
— 21,  Pay-off  Slip,  172 
— 22,    Chart    of   Nationalities,    Nat- 
uralization   and    Residence    of 
Employees,   181 

— 23,  Chart  Showing  Length  of  Em- 
ployment, 183 

— 24,  Turnover  by  Months,  185 
— 25,    Labor   Turnover   by   Depart- 
ments,  188 
— 26,   27,   Unnecessary  Wastage  of 

Material,  197 
— 28,  Wastage  and  Conservation  of 

Supplies,   199 

— 29A,   Spoiled  Semi-Processed  Ma- 
terial, 202 

— 29B,  Summation  of  Losses,  203 
— 30,  Record  of  Supplies,  205 
— 31,    Effectively    Conserved     Sup- 
plies, 207 

— 32,    Supply   Chart,   209 
— 33,      Location      of      Constriction 

Points,  217 

— 34,  Daily  Output  Chart,  220 
— 35,  Daily  Total  and  Departmental 

Output,  221 
— 35A,    Chart    Showing   Number   of 

Employees,  222 
— 36,     Illustration    of    a    Dispatch 

Office,  227 
— 37,  Excess  Board,  228-230 


— 38,  Comparison  of  "Excess 
Cards,"  231 

— 39,  Monthly  Production  Graph, 
232 

—40,  Chief  Dispatcher's  Desk,  234 

— 40A,  Detail  of  Dispatch  Boards, 
236 

— 41,  42,  43,  Inefficiency  in  Supply 
of  Labor,  Illustration  of,  248- 
249,  252 

— 44,  Chart  Showing  Crew  Effi- 
ciency, 254 

— 45,  Crew  Efficiency  Graph,  255 

— 46,  Control  Graph  Showing  Units 
per  Man,  256 

— 47,  Inefficiency  in  Use  of  Labor, 
261 

— 48,  Piece-Work,  Unstandardized 
and  Standardized,  263 

— 49,  50,  Cost-Output  Chart,  266- 
267 

— 51,  Departmental  Efficiency  Chart, 
269 

— 52,  Unstandardized  Equipment, 
276 

— 53,  Chart  Showing  Furnace 
Standardization,  277 

— 54,  Chart  Showing  Machine  Shut- 
Downs,  279 

— 55,  Chart  Showing  Belt  Failures, 
282 

— 56,  Unstandardized  Conditions, 
Illustration  of,  285 

— 57,  Standardized  Conditions,  Illus- 
tration of,  287 

— 58,  Unstandardized  Equipment, 
Illustration  of,  287 

— 59,  Heat  Chart,  295 

— 60,  Office  of  Chief  Dispatcher,  297 

— 61,  Desk  of  Departmental  Dis- 
patcher, 297 

— 62,  Technical  Control  Apparatus, 
299 

— 63,  Result  of  Industrial  Effi- 
ciency, 299 

— 64,  Kiln  Turnover  Control  Graph, 
302 

— 65,  Results  of  Scientific  Furnace 
Operation,  303 

— 66,  Effect  of  Centralized  Control, 
304 

— 67,    Chart   Showing  Reduction   of 

Essential  Factors,   306 
— 68,    Departmental    Output    Chart, 

309 

— 69,  Example  of  Casual  Planning, 
319 


INDEX 


447 


— 70,  Example  of  Casual  Dispatch- 
ing, 320 

— 71,  Idle-Machine-Cost  Chart,  322 
— 72,  Chart  of  Machines  Idle,  323 
— 73,  Chart  of  Delay  Causes,  326 
— 74,  Chart  of  Delayed  Product,  327 
— 75,  Chart  of  Delayed  Delivery,  329 
— 76,    Salesman's    Efficiency    Score 

Card,  353 

— 77,  Chart  of  Sales  Expense  Com- 
pared to  Net  Sales,  356 
— 78,  79,  Chart  Showing  Salesman's 
Efficiency   of   Price  and  Quan- 
tity, 359 
— 80,  81,  Sales  Bonus  System,  Chart 

of,  361 
— 82,  Individual  Salesmen's  Record, 

368 

— 83,  Chart  Showing  Return  on  In- 
vestment, 379 

— 84,  Chart  of  Administration  Ex- 
pense, Operation  Cost,  and  Net 
Sales,  381 

— 85,    Chart  For  Estimating  Finan- 
cial Requirements,   387 
— 86,    Chart    of    Scientific    Manage- 
ment Economy,  391 
— 87,    Chart    Showing  False   Econo- 
mies,  392 

— 88,  Hollerith  Card  Punch,  422 
— 89,  Hollerith  Machine  Cards,  423 
— 90,    Hollerith    Card-Sorting    Ma- 
chine, 424 

— 91,  Powers  Tabulator-Printer,  426 
— 92,  Sample  of  Work  Performed  by 

Powers  Tabulator-Printer,  427 
— 93,  Sample  of  Findex  Card,  430 
— 94,  Comparison  of  Index  Numbers 

by  the  Difference  Method,  436 
— 95,  Index  Numbers  Compared  By 

the  Ratio  Method,  437 
— 96,  Ratio  Method  of  Comparison, 

438 

Filling  Out  Register  Cards,  169 
Finance,  Investment  Phase  of,  382 
Financial  Failure,  Illustration  of,  26 
— Requirements,  Chart  For  Estimat- 
ing, 387 

Findex  Card,  Sample  of,  430 
Fisher,  Irving,  Reference  to,  439 
Fluctuations,  Analysis  of,   132 
Follow-Up  Illustrated,  94 
Forecasting,  Scientific,  22 
Fuel,  Results  as  to,  398 
Fundamental  Factors,  135 

— Principles,  Application  of,  33 
— Principles  of  a  Cost  System,  32 


Furnace    Operation,    Scientific,    Result 
of,  303 

General  Charges,  378 
Gilbreth,  Frank  B.,  Reference  to,  440 
Going,  Charles  B.,  Reference  to,  441 
Golden  Eule,  Application  of,  168 
Gowin,  E.  B.,  Reference  to,  440 
Graduated  Ruling   Pen  and   Specimen 

Lines,  105 

Graph,  Control,  of  Kiln  Turnover,  302 
— Control,   Showing  Units  per  Man, 

256 

— Crew  Efficiency,  255 
— "Net  Profit,"    129-130 
— of  Gross  Profits,  132 
— of    Selling    Price    versus    Manu- 
facturing Costs,  133 
— Showing  Monthly  Production,  232 
— Showing  Result  of  Scientific  Fur- 
nace Operation,  303 
Graphic  Curves,  108,  113 

— Method,  One-Man,  102 
Graphic  Presentation  of  Selling  Prices, 

144 
— Standard    versus    Actual    Profits, 

142 
Graphs  and  the  "Exception  Principle", 

117 

— Indicating  Wastage,  196 
— Relative  Values  Shown  by,  107 
— Typical  Set  of,   128 
Gross  Profits,  Graph  of,  132 
Growth  of  Corporations,  4 

Handling   Correspondence,    Method   of, 

82 

— Details,  126 

Harmony,  Importance  of,  332 
Harvard   University   Graduate    School 
of      Business      Administration, 
Statement  of,   405-407 
Heat  Chart,  295 
Hine,   Charles  De  Lano,  Reference  to, 

440 
Hollerith  Card  Punch,  422 

— Card-Sorting    Machine,    424 
—Machine  Cards,  423 
— Standardization,     Chart     Showing 
Result  of,  277 

Gad-Carrot  Principle,  245 
Gantt,    H    L.,    On    Scientific    Manage- 
ment, 409 
— Reference  to,  440 

Ideals  As  a  Goal,  367 

Idle  Labor,  Problem  of,  224 


448 


INDEX 


— Machine  Cost  Chart,    322 
Illustration  of  Dispatch  Office,  227 
— Financial  Failure,  26 
— Follow-Up,  94 
— Inefficiency   in    Supply   of   Labor. 

248-249,  252 

— Standardized  Conditions,  287 
— Unstandardized    Conditions,    f°5 
— -Unstandardized   Equipment,    2d7 
Imperfect    Planning,    Wastes    due    to, 

318 
Importance  of  Harmony,   332 

— Tabulating  Data,  351 
Important    Opinions,    Educational    and 

Governmental,  405 
Improper  Plant  Balance,  216 
Improvement  versus  Innovation,  273 
Income  and  Expenditure,   Charting  of, 

388 
Increasing  Stress  Upon  Responsibility, 

408 

Index  Numbers  Compared  by  the  Dif- 
ference Method,  436 
— Compared   by    the    Ratio    Method. 

437 

—Ratio  Method  of  Comparing,  438 
Indirect-Labor  Expense,  Graphic 

Analysis  of,   153 
— Standards,    154 
Individual  Salesman's  Record,  368 
Industrial  Cost  Finding  Reference  Note 

On  Interest,   375 
— Efficiency,  Result   of,  299 
Industrial  Management  Magazine,  Ref- 
erence to,  441 

Inefficiency,  Executive,  Remedy  for,  97 
— in   Supply   of   Labor,    Illustration 

of,  248-249,  252 
— in  Use  of  Labor,  261 
Inefficient  Executives,  73 
Innovation  versus  Improvement,  273 
Inspection  Department,  343 
Insuring   Competent   Management,   305 
Interest  of  Worker,  270 

— On  Investment  As  a  Cost  Factor. 

375 

Interview,  Limited,   89 
Investment,  Chart  Showing  Return  On, 

379 

— Interest  on,  375 
— Phase  of  Finance,   382 

Jevons,  W.  S.,  Reference  to,  439 
Job,  Bossing  of,  86 

— Cost,  58 
Job  Production  Operation,   311 

— System,  317 
Jones,  Edward  D.,  Reference  to,  440 


Journal  of  The  A.  S.  M.  E.(  Reference 

to,  442 
Justice  and  Scientific  Management,  266 

Keynote  of  Scientific  3anagement,  409 
Knoeppel,  C.  L.,  R^f^renco  to,  440 
Knov-'  ,dge  Exact,  Necessity  of,  20 

Labor  and  Machinery,   Laws  for,   282 

— Conservation,    157 

— Cost,  Direct  and  Indirect,  136 

— Effect  of  Equipment  on,  284 

— Expense,     Direct,     Graphic     Pre- 
sentation of,   152 

— Expense,  Indirect,  Graphic  Analy- 
sis of,    153 

— Idle,  Problem  of,  224 

— Indirect,   Standards  of,  154 

— Inefficiency  in  Supply  of,  248-249, 
252 

— Inefficiency  in  Use  of,  261 

— Results  as  to,  400 

— Selection  of,   159 
Labor  Turnover  by  Departments,   188 

— Monthly,  184 

— Reduction  of,  173 
Lack  of  Standardization,  Prevalence  of 

253 

Law  of  Dependent  Sequence,   243 
Laws   for    Machinery   and   Labor,   282 
Length  of  Employment,   182 
Limited  Interview,  The,  89 
Listing  and  Adding  Machines,  412 
Losses,  Summation  of,  203 
Lost  Sales,  354 

McGraw-Hill    Book    Company,    Refer- 
ence to,  441 

Machinery   and  Labor,   Laws   for,   282 
Machines,    Adding    and    Listing,     412 

— Computing  and  Tabulating,  421 

— Idle,  Chart  of,  323 

— Hollerith,    Card   Sorting,   424 

— Shut-Downs,    Chart    Showing,   279 
Management,  Casual,   Results  of,  308 

— Competent,  Insuring  of,  305 

— Periodicals  of,  441 
Management,    Scientific,    and    Justice, 
266 

— and  Manufacturing,  292 

— and  Scheduling,  362 

— and  the  Worker,  264 

— Application  of,  402 

— Basis  of,  37 

— Difficulties  of  Introducing,  896 

— Elements  of,  39 

— Field  for,   1 

— Keynote  of,  409 


INDEX 


449 


Manager,  Employment,  163 

— Qualifications   of,   348 

— Sales,    Type,   350 

— Usual  Type  of,  394 
Manufacture,  Sewer-Pipe,  Cost  of,  127 
Manufacturing  and  Scientific  Manage- 
ment, 292 
Manufacturing  Cost,   149 

— Total,   Curves  Showing,   150 
Manufacturing    Costs    versus     Selling 

Price,  Graph  of,  133 
Marshall,  Alfred,  Reference  to,  439 
Material  Charts,  208 

— Conservation,  157 

— Cost  per  Ton,  136 

— Selection  of,  195 

— Spoiled  Semi-Processed,  202 

— Wastage,  Unnecessary,  197 
Mechanical     Classification    of    Execu- 
tive Data,   428 
Menace  of  Waiting  Line,   84 
Method    of    Handling    Correspondence, 
82 

— One-Man  Graphic,  102 
Methods,  Antiquated,  29 

— Comparison  of  English  and  Ameri- 
can, 9 

— Scientific,  and  Trade  Secrets,  291 

— Scientific,  Field  for,  289 

— Store-room,  204 

Mismanagement  Reduces  Output,  214 
Mnemonic  and  Numerical  System,  Com- 
bination of,  62 

— System,  Advantage  of,  58 
Modern  versus  Ancient  Practice,  410 
Monopolistic  Type  of  Business,  338 
Monopoly  and  Quality,  360 
Monthly  Cost  Sheet,  50 

— Cost  Summary,  127 

— Labor  Turnover,   184 

— Output  Charts,  219 

— Production  Graph,  232 

— Turnover,    185 


Narrow-Minded  Executives,  13 

Naturalization,  182 

Necessity  for  Exact  Knowledge,  20 

Net  Profit  Graph,  129-130 

Net  Sales  Compared  to  Administration 

Expense,  381 
New  Tork  Efficiency  Society  Bulletins, 

Reference  to,  442 

Notebook,  Executive's,  Pages  from,  93 
Number    of    Employees,    Departmental 

and  Total,  Daily,  222 
Numerical     and     Mnemonic     System, 

Combination   of,   62 


Office  of  Chief  Dispatcher,  297 
One-Man  Graphic  Method,   102 
Operating  the  Dispatch  Board,  233 
Operation  Cost  Compared  to  Adminis- 
tration Expense,  381 

— Job-Production,  311 
Operative  Efficiency  and  Costs,  52 
Opinion  versus  Pacts,  100 
Opinions,   Important,  Educational  and 

Governmental,  405 
Organization,  Feudal  Type  of,  15 
Output,   146 

— and  Production  Costs,  211 

— Chart,  Daily,  220 

— Chart,  Departmental.  309 

— Charts,  Daily  and  Monthly,  219 

— Cost  Chart,  266-267 

— Curves  of,  136 

— Reduced  by  Mismanagement,  214 

— Results  as  to,  399 
Outside  Securities,  383 
Over-Expansion,  Danger  of,  384 

Paper  for  Graphs,  104 
Past  Records,  Study  of,  388 
Payment    Based    on    Accomplishment, 

366 

— of  Salesmen,  Basis  of,  366 
Pay-Off  Slip,   172 
Pen,  Graduated  Ruling,  105 

— Ruling,  Advantages  of,  103 
Periodicals  of  Management,  441 
Piece-Work,  Unstandardized  and 

Standardized,  263 
Planning,  92,  316,  317 
— and  Dispatching,  312 
—Casual,  Example  of,  319 
— Continuous-Production  System, 

316 

— Imperfect,  Wastes  Caused  by,  318 
— Job-Production  System,  317 
Plant  Balance,  Improper,  216 
Points,    Constriction,  Location  of,  217 
Powers  Tabulator-Printer,  426 
Practice,  Modern  versus  Ancient,  410 
Preference    As    a    Means    of    Securing 

Business,  360 
Prevalence  of  Lack  of  Standardization, 

253 
Price,    Selling,    versus    Manufacturing 

Costs,  133 

Price-Cutting  and  Bonus  System,  363 
— As  a  Means  of  Obtaining  Business, 

360 
Prices,  Selling,  143 

— Graphic  Presentation  of.   144 
Principle,  Exception,   Graphs  and  the, 
117 


450 


INDEX 


— "Gad-Carrot,"  245 
Principles,  Application  of,  33 

— Fundamental,  of  a  Cost  System,  32 
Problem  of  Idle  Labor,  224 
Product,  Delayed,   Chart  of,  327 
Production,  Continuous,  316 

— Costs,  55,  211,   389 

— Graph,  Monthly,  232 

— Systems,  Continuous,   58 
Profit,  141 

—Net,  Graph  of,  129-130 
Profits,  55 

— Gross,  Graph  of,   132 
Prosperity  versus  Success,  6 
Punch,   Key,   Hollerith,   422 

Qualifications  of  Manager,  348 
Quality  and  Monopoly,   360 

Ratio  Charts,  433 

— Method      of      Comparing      Index 
Numbers,  437 

— Method  of  Comparison,  438 
Beaching  Desirable  Workers,  177 
Recommendation    for    Standard    Prac- 
tice, 280 
Record  of  Supplies,  205 

— Salesmen's,  368 
Records,  Past,  Study  of,  388 
Reducing  Delays,  278 
Reduction  of  Labor  Turnover,  173 

— Output  by  Mismanagement,  214 
Register  Cards,  Filling  Out  of,  169 
Rejections,  Tabulation  of,  347 
Relationship  between  Departments,  342 

— of  Curves,  139 

Relative  Values  Shown  by  Graphs,  107 
Remedy  for  Executive  Inefficiency,  97 
Reservoirs  of  Work,  247 
Residence,  182 
Responsibility,  Increasing  Stress  upon, 

408 
Results  as  to  Costs,  399 

—Fuel,  398 

— Labor,  400 

— Output,  399 
Results  of  Casual  Management,  308 

— Friction     Between     Departments. 
336 

— Furnace  Standardization,  277 

— Industrial   Efficiency,   299 

— Scientific  Furnace  Operation,   303 

— Standardization,   251 

— Use  of  Charts,  301 

— 'Use  of  Dispatch  Board,  44 
Reward,  Scientific  Method  of,  371 
Ruling  Pen,   Advantages  of,   103 


Safety  of  Employees,  189 
"Safety  First"   Campaigns,   191 
Sales   Department,    Scientific    Manage- 
ment of,  357 

—Double-Star,   354 

— Lost,    354 

— Manager   Type,  350 

— Net,    Comparison    to    Administra- 
tion Expense,  381 

— Statistics,   357 

Salesman     and     Superintendent     Con- 
trasted,  332 

Salesman's  Efflciency,  Chart  Showing, 
359 

— Score  Card,  353 
Salesmanship,  2 
Salesmen,  Basis  of  Paying,  366 

— Expense  Accounts  of,  355 

— Record  of  Individual,  368 
Sample  of  Findex  Card,  430 

— Work  Performed  by  Powers  Tabu- 
lator-Printer, 427 
Scale  of  Charts,  104 
Scheduling  and  Scientific  Management, 

362 
Scientific  Dispatching,  312 

— Forecasting,  22 

— Method    of    Reward,    Department 
Stores,  371 

— Methods,   and  Trade   Secrets,   291 

— Planning,  312 

Scientific  Management,  Application  of, 
402 

— Basis  of.  37 

— Difficulties  of  Introducing,  396 

— Economies  Effected  by,   391 

— Elements  of,  39 

— Field  for,  1 

— Keynote  of,  409 

— of  Sales  Department,  357 
Scientific  Management  and  Justice,  266 

— Manufacturing,  292 

— Scheduling,  362 

— the  Worker,  264 
Score    Card   of    Salesman's    Efficiency, 

353 

Securities,  Outside,  383 
Selecting  Labor,  159 

— Material,    195 

Selling    Price     versus     Manufacturing 
Costs,   133 

— Prices,   143 

— Prices,   Curves  Showing,   144 
Sequence,  Dependent,  Law  of,  24S 
Service  Card,  59 
Set  of  Typical  Graphs,  128 
Setting  Standards,   141,  244 
Sewer-Pipe  Costs,  127 


INDEX 


451 


Shadwell,    Arthur,    Reference    to,    440 
Sheet,  Daily  Distribution,  48 

—Monthly  Cost,   50 
Slip,  Pay-off,    172 
Sorting  Machine,  Card-,  424 
Special  Details,  120 
Staff,  Training  of,   81 
Standard   and    Actual    Output.    Curves 
Showing,   148 

— Value  of,  255 

— versus  Actual  Profit  Curves,  142 
Standardization,  286 

— Accurate,  274 

— Furnace,  277 

— Lack  of,  253 

— Results  of,  251 
Standardized  Piece-Work,  263 
Standard     Practice     Recommendation, 

280 

Standards  Based   On   Territory   Possi- 
bilities, 369 

— Indirect-Labor,  154 

— Setting  of,  244 
Statistics  Concerning  Territories,    352 

— Sales,  357 

— Value  of,  271 
Stopping  Technical  Wastes,  203 
Store-Boom  Methods,  204 
Strain  upon  Executives,  8 
Strategic  Type  of  Business,  340 
Stress   Upon  Responsibility,  408 
Studies,  Time,  Value  of,  215 
Study  of  Past  Records,  388 
Subordinates,  17 
Subordination  of  Detail,   11 
Success  versus  Prosperity.   6 
Summary  of  Cost,  127 
Summation  of  Loses,  203 
Superintendent,  Evolution  of.  306 
Supplies,  Effectively  Conserved,  207 

— Record  of,  205 

— Wastage  and  Conservation  of,  199 
Supply  Chart,  209 

— of  Labor,  Inefficiency  in,  248-249, 

252 
System,  Continuous-Production,  58,  316 

— Mnemonic,   Advantages  of,   58 

— Mnemonic    and    Numerical,    Com- 
bination of,  62 

— Tickler,  92 

Tabulating    and    Computing    Machines, 

421 

— Rejections,  347 
Tabulator-Printer,  Powers,  426 

— Sample    of    Work    Performed    by, 

427 
Taylor,  F.  W.,  Reference  to,  440-441 


— Society    Bulletins,    Reference    to, 

441 
Technical  Control  Apparatus,  299 

— Wastes,   Stopping  of,   203 
Territories,    Statistics   concerning.   352 
Territory     Possibilities     As     a     Sales 

Standard,  369 
Tests,   Common-Sense,    162 
Thompson,  C.  B.,  Reference  to,  441 
Three  Classes  of  Business,  360 

— Types  of  Business.   337 
Tickler  System,  92 
Time,  Conservation  of,  91 

—Studies,  215,  311 
Total      Manufacturing     Cost,      Curves 

Showing,  150 

Trade  Commission,  Federal,  Reference 
to,  440 

— Secrets,  291 
Training  of  Staff,  81 
Turnover  by  Months,   185 

— Departmental,   186 
Turnover,  Labor,  by  Departments,  188 

— Montkly,  184 

— Reduction  of,  173 
Type  of  Manager,  Usual,  394 

— of  Organization,  Feudal,  15 

— Salesman,  350 

— Sales  Manager,  350 
Type  of  Business,  Competitive,  342 

— Monopolistic,  338 

— Strategic,    340 
Types  of  Business,  337 
Typical  Dispatch  Board,  and  Dispatch 
Clerk's  Desk,  45 

— Graphs,  Set  of,   128 


Units   per   Man,    Control   Graph   Show- 
ing, 256 

Unnecessary  Wastage  of  Material,  197 
Unstandardized  Conditions,  Illustration 

of,  285 

— Equipment,  276,  287 
— Piece- Work,  263 
Usual  Type  of  Manager,   394 


Value  of  a  Standard,  255 
— Dependableness,  325 
— Statistics,  271 
— Time  Studies,  215 
Values,    Relative,    Shown    By    Graphs, 

107 
Vandeventer,    John   H.,    Reference    to, 

441 

Van  Nostrand  Company,  D.,  Reference 
to,  441 


452  INDEX 

Waiting  Line,  Menace  of,  84  Western  Efficiency  Society,  Official  Or- 

Wastage  and  Conservation  of  Supplies,  gan  of,  Reference  to,  442 

199  Wood,  George  H.,  Reference  to,  439 

— Graphs  which  Reveal,  196  Work,   The  Zest   for,  259 

— Unnecessary,  of  Material.  197  Worker,  Interest  of,  An  Asset,  270 

Waste,  Economic,  258  — Relation  of  to  Scientific  Manage- 

Wastes    Due    to    Imperfect    Planning,  ment,  264 

318  Workers,  Desirable,   177 
— Technical,   Stopping  of,   203 

Wenzel,  John,  Reference  to,  439  Zest  for  Work,  The,  259 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 

Los  Angeles 
This  book  is  DUE  on  the  last  date  stamped  below. 


Form  L9-25m-7,'63(D8618s8)444 


Library 
Graduate  School  of  Business  Administration 

University  of  California 
Los  Angeles  24,  California 


000  247  604     2 


